1 Which of the following statements is true Publicly traded U S companies must provide an annual report to their shareholders only when operating conditions change significantly An unqualified independent auditor s report must be included in the annual report Notes to the financial statements do not need to be included in the annual report because that information is only for internal users A Management Discussion and Analysis section is required in annual reports to shareholders even when financial results are positive 2 Notes to the financial statements include which of the following 3 Which of the following financial statements is divided into major categories of operating investing and financing activities 4 If the retained earnings account increases from the beginning of the year to the end of the year then A B C D A B C D A B C D A B C D A B C D An independent auditors report Explanations of uncertainties Short form Income Statement Subsidiary ledger for Accounts Receivable The income statement The balance sheet The retained earnings statement The statement of cash flows net income is less than dividends a net loss is less than dividends additional investments are less than net losses net income is greater than dividends 5 If services are rendered on account then assets will decrease liabilities will increase stockholders equity will increase liabilities will decrease 6 An investment by the stockholders in a business increases assets and stockholders equity assets and liabilities liabilities and stockholders equity assets only 7 Using accrual accounting expenses are recorded and reported only when they are incurred whether or not cash is paid when they are incurred and paid at the same time if they are paid before they are incurred if they are paid after they are incurred 8 A small company may be able to justify using a cash basis of accounting if they have 9 Stockholders equity can be described as claims of sales under 1 000 000 no accountants on staff few receivables and payables all sales and purchases on account creditors on total assets owners on total assets customers on total assets debtors on total assets 10 Common stock is reported on the statement of cash flows retained earnings statement income statement balance sheet A B C D A B C D A B C D A B C D A B C D A B C D A B C D 11 The Vintage Laundry Company purchased 6 500 worth of laundry supplies on June 2 and recorded the purchase as an asset On June 30 an inventory of the laundry supplies indicated only 2 000 on hand The adjusting entry that should be made by the company on June 30 is debit Laundry Supplies Expense 2 000 credit Laundry Supplies 2 000 debit Laundry Supplies 4 500 credit Laundry Supplies Expense 4 500 debit Laundry Supplies 2 000 credit Laundry Supplies Expense 2 000 debit Laundry Supplies Expense 4 500 credit Laundry Supplies 4 500 12 On July 1 the Fisher Shoe Store paid 15 000 to Acme Realty for 6 months rent beginning July 1 Prepaid Rent was debited for the full amount If financial statements are prepared on July 31 the adjusting entry to be made by the Fisher Shoe Store is debit Rent Expense 15 000 credit Prepaid Rent 2 500 debit Prepaid Rent 2 500 credit Rent Expense 2 500 debit Rent Expense 2 500 credit Prepaid Rent 2 500 debit Rent Expense 15 000 credit Prepaid Rent 12 500 13 Use the following data to determine the total dollar amount of assets to be classified as current assets Koonce Office Supplies Balance Sheet December 31 2012 130 000 Cash 60 000 Prepaid Insurance 100 000 Accounts Receivable 140 000 Inventory 150 000 Land held for Investment 180 000 Land 200 000 Buildings Less Accumulated 40 000 160 000 Depreciation Trademarks 140 000 1 060 000 Total Assets Accounts Payable Salaries Payable Mortgage Payable Total Liabilities 140 000 20 000 160 000 320 000 Common Stock 240 000 Retained Earnings 500 000 Total Stockholders Equity 740 000 Total Liabilities and Stockholders Equity 1 060 000 A B C D 580 000 430 000 360 000 290 000 A B C D A B C D A B C D 14 Use the following data to calculate the current ratio Koonce Office Supplies Balance Sheet December 31 2012 130 000 Cash 60 000 Prepaid Insurance 100 000 Accounts Receivable 140 000 Inventory 150 000 Land held for Investment 180 000 Land 200 000 Buildings Less Accumulated Depreciation 40 000 160 000 Trademarks 140 000 1 060 000 Total Assets Accounts Payable Salaries Payable Mortgage Payable Total Liabilities 140 000 20 000 160 000 320 000 240 000 Common Stock Retained Earnings 500 000 Total Stockholders Equity 740 000 Total Liabilities and Stockholders Equity 1 060 000 15 In horizontal analysis each item is expressed as a percentage of the 1 81 1 1 44 1 3 07 1 2 69 1 net income amount stockholders equity amount total assets amount base year amount 16 When a change in depreciation method occurs prior years financial statements should be changed to reflect the newly adopted method the change should be reported in current and future years the cumulative effect of the change should be reflected on the income statement as of the beginning of the next year the cumulative effect of the change in accounting principle should be classified as an extraordinary item on the income statement A B C D A B C D A B C D 17 Which of the following statements is true with respect to financial statement reporting for all cases when a company changes from one acceptable accounting method to another Comparability across periods is impaired Only a footnote is required to report the change Changes in both depreciation methods and inventory methods are reported retroactively Management must indicate that the accounting method change is preferable to the old method 18 Which of the following would be considered a change in accounting principle Changing the estimated percentage used in calculating bad debt expense Changing the inventory costing method used from FIFO to LIFO Changing the estimated useful life of a plant asset from 5 to 10 years Changing auditing firms to find a more liberal opinion 19 From an internal control standpoint the asset most susceptible to improper diversion and use is prepaid insurance cash buildings land 20 A very small company would have the most difficulty in implementing which of the following internal control activities Separation of duties Limited access to assets Periodic independent verification A B C D 21 The reconciliation of the cash register tape with the cash in the register is an example of Sound personnel procedures A other