Financial Accounting An Introduction to Concepts Methods and Uses 14th Edition Roman L Weil Katherine Schipper Jennifer Francis- Test Bank
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Sample Test
Chapter 3: The Basics of Record Keeping and Financial Statement
Preparation: Income Statement
TRUE/FALSE
1. The
last step in the accounting record-keeping process is preparing the balance
sheet from amounts in the balance sheet accounts.
ANS:
F
PTS: 1
DIF:
1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
2. Current
accounting practice takes the viewpoint of shareholders by reporting the amount
of net income available to shareholders after subtracting from revenues all
expenses incurred in generating the revenue by claimants (for example,
employees, lenders, governments) other than shareholders.
ANS: T
PTS:
1
DIF: 1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
3. Expenditures
on advertising and research must be recognized as expense in the period of
expenditure, regardless of the firm’s expectation of future benefits.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
4. Operating
risk arises from the asset side of the business, and financing risk arises from
debt.
ANS: T
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
5. Revenues
measure the inflow of net assets from operating activities.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
6. Expenses
provide future benefits, and assets measure the consumption of those benefits.
ANS:
F
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO: 3-01
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
7. Common
terminology, but not definitions
in U.S. GAAP and IFRS, often refers to the difference between sales and cost of
sales as gross margin, gross profit, or gross income.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
8. Expenses
measure the outflow of net assets consumed in the process of generating
revenues.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
9. Cost
is the economic sacrifice made to acquire goods or services.
ANS:
T
PTS:
1
DIF: 1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
10.
Gains/Losses arise from relatively infrequent transactions, and
there can be no assurance that they will recur in any future period.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Knowledge
11.
The beginning balance of the shareholders’ equity account
Retained Earnings plus net income from the income statement less dividends
equals the ending balance of Retained Earnings.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
12.
Retained earnings measures the cumulative excess of net income
over dividends for the life of a firm. Cumulative means that retained earnings
aggregates all undistributed earnings.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
13.
The statement of cash flows begin with revenues; for this
reason, analysts often refer to revenue growth as “top-line” growth.
ANS:
F
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
14.
Most firms display the components of cost of sales.
ANS:
F
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
15.
The income statement typically provides information about the
operating results of business segments.
ANS:
F
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO: 3-02
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
16.
Items classified as operating expenses reflect management’s
judgment that the item is a cost of the core business.
ANS: T
PTS:
1
DIF: 1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
17.
Adjusting entries are part of the measurement of net income for
the period and financial position at the end of the period.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 79-82
OBJ: LO:
3-03 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-07-Adjusting
Entries
KEY: Bloom’s: Knowledge
18.
Adjusting entries may increase or decrease balances in balance
sheet accounts and income
statement accounts.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 79-82
OBJ: LO:
3-03 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-07-Adjusting
Entries
KEY: Bloom’s: Knowledge
19.
If Moore pays a $600 insurance premium for a one-year policy on January
31 for coverage from February 1 of Year1 through January 31 of Year 2,
the journal entry to be made at the end of February Year 1 would include a
debit to Insurance Expense for $600.
ANS:
F
PTS:
1
DIF:
1
REF: pp. 79-82
OBJ: LO:
3-03 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Application
20.
All transactions that increase net assets affect income.
ANS: F
PTS:
1
DIF: 1
REF: pp. 84-87
OBJ: LO:
3-04 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Knowledge
21.
When the accountant transfers the balance in each temporary
revenue and expense account
to the Retained Earnings account, this procedure is known as the
closing of accounts.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 84-87
OBJ: LO:
3-04 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-08-Closing
Entries
KEY: Bloom’s: Knowledge
22.
Once revenue and expense accounts serve their purpose of
accumulating specific revenue and expense items for an accounting period, they
have no further
purpose for that period.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 84-87
OBJ: LO:
3-04 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Knowledge
23.
The income statement links the beginning and ending balance
sheets.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 73-74
OBJ: LO:
3-05 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
24.
The equation that describes the relationship between the balance
sheet and the income statement through the Retained Earnings account is as
follows:
Retained Earnings (beginning) + Net Income – Dividends =
Retained Earnings (ending)
ANS:
T
PTS:
1
DIF:
1
REF: pp. 73-74
OBJ: LO:
3-05 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
25.
Recording revenues and expenses directly in the Retained
Earnings account suppresses information about the causes of net income.
ANS:
T
PTS:
1
DIF:
1
REF: pp. 73-74
OBJ: LO:
3-05 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Knowledge
MULTIPLE CHOICE
1. A
T-account is a device or convention for organizing and accumulating the
accounting entries of transactions that affect an individual account.
Which of the following is/are true?
|
a. |
Increases in assets appear on the left
side, and decreases in assets appear on the right side of T-accounts. |
|
b. |
Increases in liabilities appear on the
right side, and decreases in liabilities appear on the left side of
T-accounts. |
|
c. |
Increases in shareholders’ equity
appear on the right side, and decreases in shareholders’ equity appear on the
left side of T-accounts. |
|
d. |
All of the above are true. |
|
e. |
None of the above are true. |
ANS:
D
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP:
APC-02-GAAP
KEY: Bloom’s: Knowledge
2. To
record the purchase of equipment that is fully financed by the seller, you
would
|
a. |
debit a liability and credit an asset. |
|
b. |
debit an asset and credit cash. |
|
c. |
debit an asset and credit a liability. |
|
d. |
debit an asset and credit shareholders’
equity. |
|
e. |
debit a liability and credit
shareholders’ equity. |
ANS:
C
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO: 3-01
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP:
APC-02-GAAP KEY: Bloom’s: Knowledge
3. Many
firms provide similar types of airline services with similar types of assets.
They each received unqualified opinions from their independent auditors. Yet,
Flash Airlines appears to apply its accounting principles more aggressively in
income-enhancing ways relative to its competitors. The choices for Flash
Airlines in applying generally accepted accounting principles under the accrual
basis of accounting include(s):
|
a. |
depreciable lives for buildings and
equipment. |
|
b. |
estimated uncollectibles for accounts
receivable. |
|
c. |
estimated warranty costs. |
|
d. |
all of the above. |
|
e. |
none of the above. |
ANS: D
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Knowledge
4. The
accounting system uses a device called an account. An account
|
a. |
is created each time a transaction
takes place. |
|
b. |
accumulates the increases and decreases
that occur during the period for a single item. |
|
c. |
is created only for income statement
items. |
|
d. |
is created only for balance sheet
items. |
|
e. |
None of these answer choices is
correct. |
ANS:
B
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Knowledge
5. A
seller of goods can easily associate (or match) the consumption of the benefits
of the asset sold with revenues from its sale. At the time of sale and revenue recognition,
the seller
|
a. |
removes the asset (inventory) from the
seller’s balance sheet. |
|
b. |
recognizes revenue. |
|
c. |
recognizes a reduction in an asset
(inventory). |
|
d. |
records the cost of goods sold expense
in the same amount by which inventory decreases. |
|
e. |
All of the answer choices are correct. |
ANS:
E
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
6. U.S.
GAAP and IFRS require firms to initially report the results of most income
transactions in the
|
a. |
retained earnings bypassing the income
statement. |
|
b. |
income statement instead of bypassing
the income statement and reporting the amounts in some other shareholders’
equity account. |
|
c. |
paid-in-capital bypassing the income
statement. |
|
d. |
retained earnings bypassing the income
statement. |
|
e. |
treasury stock bypassing the income
statement. |
ANS: B
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP:
APC-02-GAAP
KEY: Bloom’s: Knowledge
7. The
last step in the accounting record-keeping process is:
|
a. |
making adjusting journal entries to the
accounts to correct errors and to reflect the financial statement impacts of
items that occur because of usage or the passage of time. |
|
b. |
preparing the income statement for the
period from amounts in the income statement accounts. |
|
c. |
closing the temporary income statement
accounts to retained earnings. |
|
d. |
preparing the balance sheet from
amounts in the balance sheet accounts. |
|
e. |
preparing the statement of cash flows
from balance sheet amounts and from details of transactions affecting the
cash account. |
ANS:
E
PTS:
1
DIF:
1
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Knowledge
8. Under
accrual accounting, revenue is recognized when
|
a. |
the firm has performed all, or most of,
the services it expects to provide. |
|
b. |
the firm has received cash, or some
other asset such as a receivable, whose cash-equivalent value it can measure
with reasonable precision. |
|
c. |
the firm has significant uncertainty
about the amount and timing of the cash inflows and outflows from the sales
transaction. |
|
d. |
both a and b must be present. |
|
e. |
none of the above. |
ANS:
D
PTS:
1
DIF:
1
REF: pp. 79-82
OBJ: LO:
3-03 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
9. The
stockholders’ equity of a firm can be defined as
|
a. |
net current assets. |
|
b. |
net noncurrent assets. |
|
c. |
a residual interest. |
|
d. |
total assets plus total liabilities. |
|
e. |
the owners’ claim to the assets and liabilities. |
ANS:
C
PTS:
1
DIF:
1
REF: pp. 73-74
OBJ: LO:
3-05 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
10.
Which of the following concepts best characterizes the accrual
basis of accounting?
|
a. |
Conservatism |
|
b. |
Matching |
|
c. |
Understandability |
|
d. |
Going concern |
|
e. |
Unit of measurement |
ANS:
B
PTS: 1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP:
APC-05-Accounting Cycle
KEY: Bloom’s: Comprehension
11.
The accrual basis of accounting is often contrasted with the
cash basis of accounting. Which of the following is true of the cash basis of
accounting?
|
a. |
The cash basis is not subject to
manipulation |
|
b. |
Most larger companies use the cash
basis of accounting |
|
c. |
The cash basis of accounting provides a
strong basis to determine the total assets of the company |
|
d. |
The cash basis provides an inferior
picture of operating performance |
|
e. |
The cash basis provides an superior
picture of operating performance |
ANS: D
PTS:
1
DIF:
1
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Knowledge
12.
Over sufficiently long time periods, the amount of net income
equals
|
a. |
cash inflows minus cash outflows from
operating activities. |
|
b. |
cash inflows minus cash outflows from
operating and investing activities. |
|
c. |
cash inflows minus cash outflows from
operating, investing, and debt servicing activities. |
|
d. |
cash inflows minus cash outflows from
operating and debt servicing activities. |
|
e. |
cash inflows minus cash outflows from
investing and debt servicing activities. |
ANS:
C
PTS: 1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
13.
The _____ convention, links the timing of some expenses with
revenue recognition.
|
a. |
going concern |
|
b. |
conservatism |
|
c. |
matching |
|
d. |
materiality |
|
e. |
objectivity |
ANS:
C
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
14.
Which of the following is/are false?
|
a. |
Firms do not necessarily recognize
revenues when they receive cash |
|
b. |
Firms do not necessarily recognize
expenses when they disburse cash. |
|
c. |
Net income will not necessarily equal
cash flow from operations each period. |
|
d. |
A profitable firm will likely borrow
funds in order to remain in business, but eventually operations must generate
cash to repay the borrowing. |
|
e. |
None of the above are false |
ANS:
E
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP:
APC-02-GAAP
KEY: Bloom’s: Comprehension
15.
Which of the following is/are true?
|
a. |
Revenues measure the inflow of net
assets from operating activities. |
|
b. |
Expenses measure the outflow of net
assets consumed in the process of generating revenues. |
|
c. |
Recognizing revenues and expenses
always involves a simultaneous entry in an asset and/or liability account. |
|
d. |
Adjusting entries almost always involve
an entry in at least one income statement and one balance sheet account. |
|
e. |
All of the above answer choices are
true. |
ANS:
E
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
16.
Which of the following is/are true?
|
a. |
Cost is the economic sacrifice made to
acquire goods or services. |
|
b. |
When the good or service acquired has
reliably measurable future benefits to a firm, the cost is an asset. |
|
c. |
When the firm consumes the good or
service, the cost is an expense. |
|
d. |
All of the above are true. |
|
e. |
None of the above are true. |
ANS:
D
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
17.
Prepaid assets are valued on the balance sheet at
|
a. |
cost paid to acquire the asset. |
|
b. |
acquisition cost less accumulated
depreciation. |
|
c. |
cost less expired portion. |
|
d. |
replacement cost. |
|
e. |
present value of future cash flows. |
ANS:
C
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP:
APC-02-GAAP
KEY: Bloom’s: Comprehension
18.
Which of the following is an example of a contra account?
|
a. |
Merchandise Inventory |
|
b. |
Accounts Payable |
|
c. |
Cost of Goods Sold |
|
d. |
Accumulated Depreciation |
|
e. |
Deferred income taxes payable |
ANS:
D
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
19.
Which equation is correct?
|
a. |
Assets = Liabilities + Contributed
Capital – Dividends |
|
b. |
Shareholders’ Equity = Assets –
Liabilities + Contributed Capital + Net Income |
|
c. |
Shareholders’ Equity = Contributed
Capital + Retained Earnings + Net Income – Dividends |
|
d. |
Retained Earnings = Net Income +
Dividends |
|
e. |
none of the above |
ANS:
C
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO: 3-01
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
20.
The firm recognizes an expense when the following condition(s)
hold(s):
|
a. |
The consumption of the asset results
from a transaction that leads to the recognition of revenue. |
|
b. |
The consumption of the asset results
from the passage of time. |
|
c. |
The expenditures on advertising must be
recognized as expense in the period of expenditure. |
|
d. |
The expenditures on research must be recognized
as expense in the period of expenditure. |
|
e. |
all of the above |
ANS:
E
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
21.
What criterion or criteria must sales transactions meet in order
for the seller to recognize revenues before collecting cash?
|
a. |
The revenues must be earned (the firm
must have achieved substantial performance). |
|
b. |
The amount to be received must qualify
as an asset (there must be a future economic benefit and the amount must be
measured with sufficient reliability). |
|
c. |
The firm must have a reasonable
expectation that it will collect the amount owed from the customer. |
|
d. |
All of the above. |
|
e. |
None of the above. |
ANS:
D
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP:
APC-02-GAAP
KEY: Bloom’s: Comprehension
22.
The matching convention assigns _____ to the related _____.
|
a. |
expenses; revenues |
|
b. |
revenues; revenues |
|
c. |
assets; liabilities |
|
d. |
liabilities; assets |
|
e. |
assets; shareholders’ equity |
ANS:
A
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-04-Cash vs.
Accrual
KEY: Bloom’s: Comprehension
23.
_____ are part of the ongoing central operations of the firm, so
they are relatively persistent and sustainable.
|
a. |
Revenues |
|
b. |
Expenses |
|
c. |
Assets |
|
d. |
Liabilities |
|
e. |
Shareholders’ equity |
ANS: A
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-24-Statement
of Cash Flows
KEY: Bloom’s: Comprehension
24.
When assets and income from operations that a firm has decided
to discontinue (and dispose of or abandon), separating the two income
components allows users to form better predictions of
|
a. |
past earnings. |
|
b. |
current earnings. |
|
c. |
future earnings. |
|
d. |
all of the above |
|
e. |
none of the above |
ANS:
C
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-04-Cash vs.
Accrual
KEY: Bloom’s: Comprehension
25.
_____ arise from relatively infrequent transactions, and there
can be no assurance that they will recur in any future period.
|
a. |
Gains/Losses |
|
b. |
Revenues |
|
c. |
Expenses |
|
d. |
Assets |
|
e. |
Liabilities |
ANS: A
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-04-Cash vs.
Accrual
KEY: Bloom’s: Comprehension
26.
The income statement is not also called the statement of
|
a. |
operations |
|
b. |
operating activity |
|
c. |
profit and loss |
|
d. |
receipts and disbursements |
|
e. |
All of the above are different names
assigned to the income statement. |
ANS:
D
PTS: 1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
27.
_____ present an ordered list, grouped by broad categories of
revenues and expenses. They begin with revenues followed by a list of expenses.
|
a. |
Income Statement |
|
b. |
Balance Sheets |
|
c. |
Statement of Retained Earnings |
|
d. |
Statement of Cash Flows |
|
e. |
None of the above |
ANS: A
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
28.
Common terminology, but not definitions in U.S. GAAP and
IFRS, often refers to the difference between sales and cost of sales as gross
|
a. |
margin. |
|
b. |
revenues. |
|
c. |
expenses. |
|
d. |
all of the above. |
|
e. |
none of the above. |
ANS:
A
PTS: 1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
29.
Which of the following is/are true?
|
a. |
After cost of sales, the income
statement typically shows deductions for other expenses associated with
operations (other operating expenses). |
|
b. |
Many firms present a subtotal called
operating income or operating profit, the difference between revenues and expenses
associated with core operating activities. |
|
c. |
Two common types of operating expenses
are selling, general, and administrative expenses (SG&A) and research and
development expenses (R&D). |
|
d. |
All of the above are true. |
|
e. |
None of the above are true. |
ANS:
D
PTS:
1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
30.
Subtraction of total operating expenses from sales yields:
|
a. |
net income. |
|
b. |
gross margin. |
|
c. |
operating profit. |
|
d. |
all of the above. |
|
e. |
none of the above. |
ANS:
C
PTS:
1
DIF: 2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP:
APC-02-GAAP
KEY: Bloom’s: Comprehension
31.
Other (nonoperating) items follow operating expenses or the
subtotal for operating profit. Most firms reporting under U.S. GAAP separately
report financing costs, such as
|
a. |
principal payments. |
|
b. |
interest revenue. |
|
c. |
interest expense. |
|
d. |
principal receipts. |
|
e. |
none of the above. |
ANS:
C
PTS: 1
DIF:
2
REF: pp. 71-73
OBJ: LO:
3-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP:
APC-02-GAAP
KEY: Bloom’s: Comprehension
32.
A firms decision to sell its headquarters building at a gain
|
a. |
would increase income in the year of
sale. |
|
b. |
is not part of the core business. |
|
c. |
would be aggregated with other noncore,
nonoperating items. |
|
d. |
reported below operating income,
probably as Other Income. |
|
e. |
All of the above would result. |
ANS:
E
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
33.
Subtracting nonoperating expenses from operating income yields:
|
a. |
income tax expense. |
|
b. |
profit before income taxes. |
|
c. |
net income. |
|
d. |
gross profit. |
|
e. |
none of the above. |
ANS:
B
PTS: 1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
34.
U.S. GAAP and IFRS require separate income statement display of
income from continuing operations and _____earnings that will not continue
because the firm either sold, or made a decision to sell, a portion of its
business). Such a requirement aids users of the income statement in predicting
future earnings.
|
a. |
income from discontinued operations |
|
b. |
extraordinary items |
|
c. |
changes in accounting principles |
|
d. |
sale of individual assets |
|
e. |
none of the above |
ANS:
A
PTS:
1
DIF: 2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
35.
A firm sells its headquarters building at a gain. This
means that at the time of sale
|
a. |
the cash or other assets received were
greater than the building’s book value. |
|
b. |
the cash or assets received in a
transaction were less than the carrying value of the assets given up. |
|
c. |
the cash or other assets received were
greater than the building’ carrying value. |
|
d. |
the cash or assets received in a
transaction were less than the building’s book value. |
|
e. |
Both choices a and c are correct. |
ANS:
E
PTS:
1
DIF: 2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
36.
As a general principle, under the accrual basis of accounting,
the firm recognizes revenue when the transaction meets which of the following
conditions?
|
a. |
Revenue is recognized when there is
completion of the earnings process, only. |
|
b. |
Revenue is recognized when there is
receipt of assets from the customer, only. |
|
c. |
Revenue is recognized when there is
completion of the earnings process and receipt of assets from the customer. |
|
d. |
Revenue is recognized when there is
expiration of the warranty period, only. |
|
e. |
Revenue is recognized when there is
receipt of the final payment, only. |
ANS:
C
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
37.
Manufacturing overhead include(s):
|
a. |
costs that the firm cannot associate
with particular products. |
|
b. |
expenditures for factory utilities,
property taxes, insurance, and depreciation on manufacturing plant and
equipment. |
|
c. |
expenditures for supervisors’ salaries. |
|
d. |
costs that jointly benefit all goods
produced during the period, not any one particular item. |
|
e. |
all of the above. |
ANS:
E
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
38.
For manufacturing firms, the cost of completed products remains
on the balance sheet as __________ assets until the firm sells the products;
upon sale, the cost of the assets becomes a cost of goods sold expense.
|
a. |
Direct Materials Inventory |
|
b. |
Work-in Progress Inventory |
|
c. |
Finished Goods Inventory |
|
d. |
Cost of Products Ready for Sale |
|
e. |
none of the above |
ANS:
C
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
39.
Which of the following is not an example of a period
expense?
|
a. |
the president’s salary |
|
b. |
insurance for the home office |
|
c. |
accounting and information systems
costs |
|
d. |
support activity costs such as legal
services, employee training, and corporate planning. |
|
e. |
the factory foreman’s salary |
ANS:
E
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
40.
Which of the following is not a period expense?
|
a. |
salaries and commissions of the sales
staff |
|
b. |
costs to produce catalogs |
|
c. |
marketing costs, such as advertising |
|
d. |
costs to produce sales literature |
|
e. |
direct labor |
ANS:
E
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
41.
A manufacturing firm has manufacturing costs which become
product costs. These manufacturing costs do not include:
|
a. |
direct material costs (or raw material
costs). |
|
b. |
direct labor costs. |
|
c. |
manufacturing overhead costs (sometimes
called indirect manufacturing costs). |
|
d. |
expenditures for administrative staff. |
|
e. |
expenditures for supervisors’ salaries,
factory utilities, property taxes, insurance, and depreciation on manufacturing
plant and equipment. |
ANS:
D
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
42.
Which of the following is not true?
|
a. |
Net income or profit for a period is
the difference between revenues from selling goods and services and the
expenses incurred to generate those revenues, plus some gains or losses of the
period. |
|
b. |
If the expenses plus losses exceed the
revenues plus gains, the result is a net loss. |
|
c. |
U.S. GAAP and IFRS require the accrual
basis of accounting, which detaches the recognition of revenue from the
receipt of cash. |
|
d. |
A seller recognizes revenues when it
has performed all, or nearly all, of its obligations to the customer and when
it has received cash or an asset that is convertible to cash. |
|
e. |
The firm recognizes and reports
expenses that have a causal link with revenues, such as cost of sales, in the
next accounting period. |
ANS:
E
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-27-Managerial
Accounting Features/Costs
KEY: Bloom’s: Comprehension
43.
Which financial statement reports operating performance for a
specific period of time?
|
a. |
Balance sheet |
|
b. |
Income statement |
|
c. |
Statement of changes in shareholders’
equity |
|
d. |
Statement of retained earnings |
|
e. |
Statement of Cash Flows |
ANS:
B
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-27-Managerial
Accounting Features/Costs
KEY: Bloom’s: Knowledge
44.
Revenue and expense accounts
|
a. |
are permanent accounts. |
|
b. |
are temporary accounts. |
|
c. |
reflect cumulative changes in each
account since the organization of the firm. |
|
d. |
record all cash receipts and cash
disbursements. |
|
e. |
none of the above. |
ANS:
B
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-27-Managerial
Accounting Features/Costs
KEY: Bloom’s: Comprehension
45.
Recognition of revenue usually occurs when
|
a. |
the firm pays for the related expenses. |
|
b. |
the revenue is earned, such as at the
time of the sale or delivery of the goods. |
|
c. |
a signed, legally binding contract is
received. |
|
d. |
an advance payment for the goods is
received. |
|
e. |
none of the above. |
ANS:
B
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO: 3-02
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP:
APC-27-Managerial Accounting Features/Costs
KEY: Bloom’s: Comprehension
46.
Dividends
|
a. |
are a period cost. |
|
b. |
are a distribution of assets to owners. |
|
c. |
enter into the calculation of net
income. |
|
d. |
appear on both the balance sheet and
income statement. |
|
e. |
none of the above. |
ANS:
B
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP:
APC-27-Managerial Accounting Features/Costs
KEY: Bloom’s: Comprehension
47.
Which of the following is correct?
|
a. |
Retained Earnings normally has a debit
balance. |
|
b. |
Retained Earnings normally has a credit
balance. |
|
c. |
Retained Earnings is closed at the end
of the fiscal year. |
|
d. |
Retained Earnings is a nominal account. |
|
e. |
None of these answer choices is
correct. |
ANS:
B
PTS:
1
DIF: 2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
48.
At the end of the third year of operation, Forgione Corporation
has total assets equal to $100,000, liabilities totaling $90,000, and
contributed capital of $30,000. What is the balance in retained earnings?
|
a. |
$40,000 (Dr) |
|
b. |
$40,000 (Cr) |
|
c. |
$20,000 (Dr) |
|
d. |
$20,000 (Cr) |
|
e. |
$10,000 (Cr) |
ANS: C
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
49.
Revenues from marketable securities and investments in
securities, interest expense on borrowings, and gains and losses from
peripheral activities appear as _____. The firm expects these sources of
earnings to continue.
|
a. |
income from continuing operations |
|
b. |
income, gains, and losses from
discontinued operations |
|
c. |
extraordinary gains and losses |
|
d. |
retained earnings |
|
e. |
paid-in-capital |
ANS:
A
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial
Statements
KEY: Bloom’s: Comprehension
50.
Which section includes income derived from a firm’s primary
business activities as well as from activities peripherally related to operations?
(Assume the firm expects these sources of earnings to continue.)
|
a. |
income from continuing operations |
|
b. |
income, gains, and losses from
discontinued operations |
|
c. |
extraordinary gains and losses |
|
d. |
retained earnings |
|
e. |
paid-in-capital |
ANS:
A
PTS:
1
DIF:
2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
51.
Shareholders of Augusta Corporation have received $35,000 in
dividends in the current year. At year end the corporation has total assets of
$500,000, total liabilities equal to $300,000, and contributed capital totaling
$100,000. If retained earnings at the beginning of the year was $80,000, what
was Augusta’s net income for the current year?
|
a. |
$80,000 |
|
b. |
$215,000 |
|
c. |
$55,000 |
|
d. |
$10,000 |
|
e. |
$45,000 |
ANS:
C
PTS:
1
DIF: 2
REF: pp. 74-78
OBJ: LO:
3-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording
Transactions
KEY: Bloom’s: Comprehension
52.
The following balances have been excerpted from Bain balance
sheets:
|
|
December 31, 2014 |
December 31, 2013 |
|
Prepaid Insurance …………………………….. |
$ 6,000 |
$ 7,500 |
|
Interest Receivable …………………………… |
3,700 |
14,500 |
|
Salaries Payable ………………………………. |
61,500 |
53,000 |
Bain Company paid or collected during 2014 the following items:
|
Insurance premiums paid ……………………. |
$ 41,500 |
|
Interest collected ……………………………… |
123,500 |
|
Salaries paid ……………………………………. |
481,000 |
The salary expense on the income statement for 2014 was
|
a. |
$366,500. |
|
b. |
$472,500. |
|
c. |
$489,500. |
|
d. |
$595,500. |
|
e. |
None of these answer choices is
correct. |
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