Financial Accounting Final Review

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Accountants refer to an economic event as a transaction
The accounting process is correctly sequenced as identification, recording, communication

Which of the following is an external user of accounting information?
a. Finance director
b. company officers
c. Labor unions
d. Managers
c. Labor Unions

Ethics are the standards of conduct by which one's actions are judged as:
a. Fair or unfair
b. Right or wrong
c. Honest or dishonest
d. All of these
d. All of these
Generally accepted accounting principles are: Standards that indicate how to report economic events
The primary purpose of the statement of cash flows is to report information about cash receipts and cash paments of a company

The dividends account:
a. must show transactions every accounting period
b. appears on the income statement
c. is not a proper subdivision of retained earnings
d. is increased with debtis and decreased with credits

d. is increased with debtis and decreased with credits
Another name for the journal is the: original book of entry
A trial balance is the listing of: General ledger accounts and balances
The usual sequence of steps in the transaction recording process is.. analyze->journal->ledger
Management usually desires ______ financial statements and the IRS requires all businesses to file _____ tax return. monthly, annual
Adjusting entries are required.... every time financial statements are prepared.
A small company may be able to justify using a cash basis of accounting if they have... few receivables and payables.
The preparation of adjusting entries is... often an involved process requiring the skills of a professional.

Accrued revenues are:
a. received and recorded as liabilities before they are earned
b. earned and recorded as liabilities before they are received
c. earned but not yet received or recorded
d. earned and already received and recorded

c. earned but not yet received or recorded
Accumulated depreciation is what kind of account? Contra-asset
The information for preparing a trial balance on a worksheet is obtained from... general ledger accounts
If the total debit column exceeds the total credit column of the income statement columns on a worksheet, then the company has.. suffered a new loss for the period

What is the order in which assets are generally listed on a classified balance sheet?
a. current and long-term
b. current; property, plant and equipment; long-term investments; intangible assets
c. current; property, plant and equipment, intangible assets; long-term investments
d. current; long-term investments; property, plant and equipment; intangible assets

d. current; long-term investments; property, plant and equipment; intangible assets
Current liabilities are obligations... that the company is to pay within the forthcoming year.
After gross profit is calculation, operating expenses are deducted to determine... net income
In a perpetual inventory system, cost of goods sold is recorded .. with each sale.
The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit...
Merchandise inventory

The operating cycle of a merchandiser is...
a. always one year in length
b. generally longer than it is for a service company
c. about the same as for a service company
d. generally shorter than it is for a service company

b. generally longer than it is for a service company
Income from operations appears on .. a multiple-step income statement
An auto manufacturer would classify vehicles in various stages of production as.. work in process
Merchandise inventory is.. reported as a current asset on the balance sheet
Items waiting to be used in production are considered to be.. raw materials
The term 'FOB' means free on board

Which one of the following inventory methods is oftern impractical to use?
a. LIFO
b. FIFO
c. Specific identification
d. Average cost
c. Specific identification
In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the... FIFO method

The lower-of-cost-or-market basis of valuing inventories is an example of:
a. conservatism
b. consistency
c. comparability
d. the cost principle
a. conservatism
Understating the beginning inventory will understate: cost of goods sold
Internal controls are concerned with: safeguarding assets
What evaluates the system of internal controls for the companies that employ them? Internal auditors
The control principle related to not having the same person authorize and pay for goods is known as: Segregation of duties
Postage stamps on hand are considered a: prepaid expense
An exception to disbursements being made by check is acceptable when cash is paid: from petty cash
A credit balance in Cash Over and Short is reported as a: Miscillaneous revenue
The entry to replenish a petty cash fund includes a credit to: cash

Replenishing the petty cash fund requires:
a. a credit to petty cash
b. a debit to various expense accounts
c. a debit to cash
d. no entry
b. a debit to various expense accounts

A debit balance in the Allowance for Doubtful Accounts:
a. is the normal balance for the account
b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
c. indicates that actual bad debt write-offs have been less that what was estimated
d. cannot occur if the percentage of sales method of estimating bad debts is used
b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a:
debit to Bad Debts Expense and credit to Allowance for Doubtful Accounts
The interest on a $5,000, 10%, 1-year note receivable is: $500
A company purchased land for $70,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at: $82,000

The four subdivious for plant assets are:
a. land, land improvements, buildings, and equipment
b. intangibles, land, buildings, and equipment
c. furnishings and fixtures, land, buildings, and equipment
d. property, plant, equipment, and land

a. land, land improvements, buildings, and equipment
Land improvements should be depreciated over the useful life of the: Land improvements

Presto company purchased equipment and these costs were incurred:
Cash price $22,500
Sales tax 1,800
Insurance during transit 320
Installation and testing 430
Total costs 25,050
Presto will record the acquisition cost of the equipment as:
a. $22,500
b. $24,300
c. $24,620
d. $25,050
d. $25,050

The balance in the Accumulated Depreciation account represents the:
a. cash fund to be used to replace plant assets.
b. amount to be deducted from the cost of the plant asset to arrive at its fair market value
c. amount charged to expense in the current period
d. amount charged to expense since the acquisition of the plant asset

d. amount charged to expense since the acquisition of the plant asset
Accountants do not attempt to meausre the change in a plant asset's market value during ownership because: The assets are not held for resale

The declining-balance method of depreciation produces:
a. a decreasing depreciation expense each period
b. an increasing depreciation expense each period
c. a declining percentage rate each period
d. a constant amount of depreciation expense each period

a. a decreasing depreciation expense each period

Units of activity is an appropriate depreciation method to use when:
a. it is impossible to determine the productivity of the asset
b. the asset's use will be constant over its useful life
c. the productivity of the asset varies significantly from one period to another
d. the company is a manufacturing company

c. the productivity of the asset varies significantly from one period to another
A loss on disposal of a plant asset is reported in the financial statements in the: Other Expenses and Losses section of the income statement

Depletion is:
a. a decrease in market value of natural resources
b. the amout of spoilage that occurs when natural resources are extracted
c. the allocation of the cost of natural resources to expense
d. the method used to record unsuccessful patents

c. the allocation of the cost of natural resources to expense

Accumulated Depletion:
a. is used by all companies with natural resources
b. has a normal debit balance
c. is a contra-asset account
d. is never shown on the balance sheet

c. is a contra-asset account

A patent should:
a. be amortized over a period of 20 years
b. not be amortized if it has an indefinite life
c. be amortized over its useful life or 20 years, whichever is longer
d. be amortized over its useful life or 20 years, whichever is shorter

d. be amortized over its useful life or 20 years, whichever is shorter
The relationship between current liabilities and current assets is: useful in evaluating a company's liquidity
Most companies pay current liabilities out of: current assets
Liabilities are classified on the balance sheet as current or: Long-term
The entry to record the payment of an interest-bearing note at maturity after all interest expense has been recognized is:
Notes Payable
Interest Payble
Cash
Sales taxes collected by a retailer are recorded by crediting: Sales Tax Payable
What entry is made when sales taxes are remitted to the state government?
Sales Taxes Payable
Cash

Secured bonds are bonds that:
a. are in the possession of a bank
b. are registerd in the name of the owner
c. have specific assets of the issuer pledged as collateral
d. have detachable interest coupons

c. have specific assets of the issuer pledged as collateral

Each payment on a mortgage note payable consists of:
a. interest on the original balance of the loan
b. reduction of loan principal only
c. interest ont he original balance of the loan and reduction of loan principal
d. interest on the unpaid balance of the loan and reduction of loan principal

d. interest on the unpaid balance of the loan and reduction of loan principal
The current portion of long-term debt should be: reclassified as a current liability.