Reference no: EM13152703

Week 3- Must show work to get full points on equation problems

1. Which of the following describes the primary objective of the balance sheet? 
A. To measure the net income of a business up to a particular point in time.
B. To report the difference between cash inflows and cash outflows for the period.
C. To report the financial position of the reporting entity at a particular point in time.
D. To report the market value of assets, liabilities and stockholders' equity at a particular point in time.

2. Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future? 
A. Assets and stockholders' equity increase.
B. Assets and revenues increase.
C. Assets and liabilities increase.
D. Assets and operating income increase.

3. The operating cycle is the time that elapses between a company's cash payment to suppliers for inventory purchases and the collection of cash from sale of inventory to customers.    TRUE/FALSE

4. The Securities and Exchange Commission's (SEC) report that is required to be filed if any special event occurs is which of the following? 
A. Form 10K
B. Form 8K
C. Form 10Q
D. Form 8Q

5. On April 1, 2011, the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date. Which of the following correctly describes the effect of the December 31, 2011 adjusting entry on the financial statements?
(Assume that no adjusting entries have been made during the year.) 
A. Prepaid insurance will decrease $750.
B. Insurance expense will increase $750.
C. Insurance expense will increase $2,250.
D. Prepaid insurance will increase $2,250.

6. Assets are reported on the balance sheet in the order of their liquidity.      TRUE/FALSE

7. The primary difference between revenues and gains is 
A. gains are increases in net assets from peripheral activities while revenues are increases from ongoing activities.
B. revenues increase operating income and gains have no impact on net income.
C. revenues cause increases in net assets as a result of peripheral activities and gains cause increases through ongoing activities.
D. gains result in an increase in operating income whereas revenues do not impact operating income.

8. What account is credited when a corporation issues stock at an amount over the stock's par value? 
A. Gain on sale of stock
B. Loss on sale of stock
C. Additional paid- in capital
D. Retained earnings

9. Credit terms of "2/10, n/30" mean that if payment is made in two days, a 10% discount will be given; if not paid within two days, the full invoice price will be due in thirty days.    TRUE/FALSE

10. During the fiscal year ended 2010, a company had revenues of $400,000, expenses of $280,000, and an income tax rate of 30 percent. What was the company's 2010 net income? 
A. $120,000
B. $36,000
C. $84,000
D. $400,000

11. Which of the following businesses would most likely not report cost of goods sold on their income statement? 
A. A law firm
B. An automobile dealership
C. A pizza restaurant
D. A computer chip manufacturer

12. The trial balance is similar to the balance sheet in that it is a listing of assets, liabilities, and stockholders' equity and is provided to external decision makers.    TRUE/FALSE

13. Which of the following journal entries was created as the result of a deferral? 
A. Unearned revenue

         Revenue
B. Interest expense

        Interest payable

C.   Cash

        Revenue
D. Salaries expense

     Cash

14. Contributed capital consists of which of the following two accounts? 
A. Common stock and Additional paid in capital
B. Common stock and Retained earnings
C. Additional paid in capital and Retained earnings
D. Retained earnings and Cash

15. Unearned revenue is reported on the balance sheet as a liability and represents amounts paid to an entity for which the entity has an obligation to provide future services and/or goods.   TRUE/FALSE

16. Which of the following are the criteria used to determine whether an item is extraordinary? 
A. It is unusual in nature and occurs frequently.
B. It is unusual in nature and occurs infrequently.
C. It is unusual in nature or occurs infrequently.
D. It is infrequent in occurrence only.

17. Which of the following accounts would not be reported on the balance sheet? 
A. Retained earnings
B. Inventory
C. Accounts payable
D. Dividends

18. The time period assumption implies that the life of a business entity can be reported in time periods such as quarters and years.    TRUE/FALSE

19. Which of the following accounts is not a liability on the balance sheet? 
A. Retained earnings
B. Notes payable
C. Taxes payable
D. Interest payable

20. A company sells magazines and collects subscription fees prior to the publication and distribution of the magazine. Which of the following correctly describes the impact on the financial statements when cash is received in advance from customers? 
A. Current assets increase and gross profit increases.
B. Current liabilities aren't affected and stockholders' equity isn't affected.
C. Current assets increase and stockholders' equity increases.
D. Current liabilities increase and gross profit is not affected.

 

21. Prepaid expenses are reported as assets at the time of the initial cash flow and when they are consumed in the future, both expenses and liabilities increase.    TRUE/FALSE

22. Which of the following transactions will result in an increase in operating income as of the date of the transaction? 
A. The sale of plant and equipment at a gain.
B. Collection of cash from a customer for services to be provided at a later date.
C. Providing a service to a customer on account.
D. The receipt of cash dividends from an investment.

23. Which of the following is true about gross profit (gross margin)? 
A. It is net sales minus operating expenses.
B. It is net sales minus cost of goods sold.
C. It is the same as income from continuing operations.
D. It is net sales minus cost of goods sold and operating expenses.

24. The mission of the Securities & Exchange Commission (SEC) is to develop generally accepted accounting principles.   TRUE/FALSE

25. Which of the following correctly describes the following journal entry?

Utilities expense

   Utilities payable 

A. Total assets decrease and net income decreases.
B. Stockholders' equity decreases and liabilities increase.
C. The transaction is an example of a deferral.
D. Net income decreases and stockholders' equity doesn't change.

26. Cash collected from customers in advance of providing the goods or services creates a liability which is reduced when the goods or services are later provided.   TRUE/FALSE

27. Which of the following assumptions implies that a business can continue to remain in operation into the foreseeable future? 
A. Historical cost principle
B. Unit-of-measure assumption
C. Continuity assumption
D. Separate-entity assumption

28. The Securities & Exchange Commission (SEC) oversees the work of the Financial Accounting Standards Board (FASB).   TRUE/FALSE

29. Newark Company has provided the following information:

· Cash sales, $450,000
· Credit sales, $1,350,000
· Selling and administrative expenses, $330,000
· Sales returns and allowances, $90,000
· Depreciation expense, $101,000
· Gross profit, $1,360,000
· Increase in accounts receivable, $55,000
· Bad debt expense, $33,000
· Sales discounts, $43,000

How much is Newark's cost of goods sold? 
A. $307,000
B. $252,000
C. $440,000
D. $340,000

30. Credit card discounts are reported as operating expenses on an income statement. 
TRUE/FALSE

31. Which of the following is correct when bad debt expense is recorded at year-end? 
A. Current assets are not affected.
B. Gross profit will decrease.
C. Income from operations will decrease.
D. Current liabilities will increase.

32. What is the effect on the financial statements when a company fails to record depreciation expense at year-end? 
A. Net income is overstated and stockholders' equity is understated.
B. Expenses are understated and stockholders' equity is understated.
C. Expenses are understated and liabilities are overstated.
D. Net income is overstated and assets are overstated.

33. Total assets are $37,500, total liabilities are $20,000 and contributed capital is $10,000; therefore, retained earnings are $7,500. TRUE/FALSE

 

34. Which of the following is an objective of the external audit of a company's financial statements? 
A. To provide a forecast of the company's future earnings.
B. To assure no fraud has been committed by the company's management.
C. To provide credibility and assurance that the financial statement information conforms with generally accepted accounting principles in all material respects.
D. To detect all accounting errors made by the accounting system and employees.

35. The amount of cash paid by a business for dividends would be reported on the statement of cash flows as an operating activity.   TRUE/FALSE

36. Which of the following statements correctly describes the effect of recording the collection of a $10,000 account receivable for which a 2% sales discount was recorded at the time of collection? 
A. Current assets will remain the same.
B. Gross profit will decrease $200.
C. Accounts receivable will decrease $9,800.
D. Net sales will increase $9,800.

37. The stockholders' equity section of a balance sheet includes contributed capital and retained earnings. 
TRUE/FALSE

38. In what order are current assets listed on a balance sheet? 
A. By dollar amount (largest first).
B. By date of acquisition (earliest first).
C. By liquidity.
D. By relevance to the operation of the business.

39. Revenue is recognized within the income statement during the period in which cash is collected. 
TRUE/FALSE

40. Investment income is reported on the income statement as operating revenues and therefore increases operating income.   TRUE/FALSE