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ACCT 2113: FINAL EXAM
A trial balance can best be explained as a list of: |
All accounts and their balances at a particular date.
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Which of the following transactions causes a decrease in stockholders' equity? |
Pay dividends to stockholders and purchase treasury stock
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Which best describes the purpose(s) of closing entries? |
Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period.
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Accounts listed in a post-closing trial balance? |
Equipment
Allowance for Uncollectible Accounts
Retained Earnings
Accumulated Depreciation, Equipment
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Payment of dividends to stockholders and Issuing common stock for cash is considered a |
financing cash flow.
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Providing services to customers on account and the Purchase of long-term assets by issuing stock are |
non cash flow activities
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Which inventory cost flow assumption generally results in the highest reported amount for cost of goods sold when inventory costs are rising? |
LIFO
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In some circumstances, application of the lower-of-cost-or-market rule can result in a company increasing its net income. |
False
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Convertible bonds: |
provide potential benefits to both the issuer and the investor.
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A lease that is essentially the purchase of an asset with debt financing? |
a capital lease
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"A contract between the bond issuer and the bond investor." |
bond indenture
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Entries for cash dividends are recorded on the |
payment date and declaration date
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Treasury stock |
has a normal debit balance and decreases stockholders' equity.
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Legally a corporation but for tax purposes is treated as a partnership |
S corporation
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The indirect and direct methods (of preparing a statement of cash flows) |
are both permissible under generally accepted accounting principles.
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a cash inflow from an investing activity? |
Receipt of cash from the sale of a building
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Which of the following is reported in the statement of cash flows if the direct method is being used? |
Cash paid to suppliers
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Reports the cash inflows and cash outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest and taxes. |
Statement of cash flows prepared using the direct method
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"Decrease in accounts payable" is an item that would appear on a statement of cash flows prepared using the direct method. |
False
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An extraordinary item must meet which of the following criteria? |
Unusual in nature and infrequent in occurrence
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"The ability of reported earnings to reflect the company's true earnings as well as the usefulness of reported earnings to help investors predict future earnings." |
Quality of earnings
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Which of the following ratios is most useful in evaluating solvency? |
Debt to equity ratio
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All contra accounts are reported on the income statement |
False
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The net realizable value of accounts receivable can be computed by subtracting the balance in the bad debts expense account from the balance in accounts receivable. |
False
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During a period of rising prices, LIFO results in a higher income tax expense than does FIFO. |
False
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When recording depreciation, total assets decrease and stockholders' equity decreases |
True
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characteristic of adjusting entries? |
Allow for the proper application of the revenue recognition principle or the matching principle and Are part of accrual-basis accounting.
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Investing activities include which of the following? |
Using cash to purchase long-term assets such as equipment.
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Which of the following transactions causes an increase in total assets? |
Issue common stock in exchange for cash
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An adjusted trial balance: |
Lists all accounts and their balances at a particular date after updating account balances for adjusting entries, Is used to prepare the financial statements. ,Includes balances for revenues, expenses, and dividends.
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Which of the following would be considered good internal control for cash receipts? |
Allowing customers to pay with a debit card, Recording cash receipts as soon as they are recorded, Allowing customers to pay with a credit card.
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Investing cash flows would include which of the following? |
Purchase of equipment with cash.
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Which of the following adjusts the company's balance of cash in a bank reconciliation? |
Interest earned
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The entry to record a write-off of accounts receivable will include: |
A debit to Allowance for Uncollectible Accounts and a credit to Accounts Receivable.
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The direct write-off method is generally not permitted for financial reporting purposes because: |
Expenses (bad debts) are not properly matched with the revenues (credit sales) that they help to generate.
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Minimize net income by maximizing depreciation expense in the first year of the asset's life? |
Short service life, low residual value, and double-declining balance depreciation.
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A liability that requires the sacrifice of something other than cash |
Unearned revenues
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If the likelihood of loss is reasonably possible, a loss contingency should be |
disclosed in the financial statement footnotes but not
reported in the balance sheet as a liability
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The body of rules and procedures that guide the measurement and communication of financial accounting information is known as |
Generally accepted accounting principles (GAAP).
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Which of the following transactions causes an increase in stockholders' equity? |
Provide services to customers on account
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Which of the following adjust the bank's balance of cash in a bank reconciliation? |
Checks outstanding
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The Sarbanes-Oxley Act mandates which of the following? |
Increased regulations related to auditor-client relations, internal control, and corporate executive accountability.
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The P/E ratio: |
indicates how a stock is trading in relation to current earnings
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The advantages of owning a corporation include |
lack of mutual agency
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Which of the following is an example of a cash outflow from an investing activity? |
Purchase of an intangible asset and Purchase of land
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Which of the following is an example of a cash outflow from an operating activity? |
Purchase of supplies
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The return on assets ratio is equal to the: |
profit margin ratio times the asset turnover ratio
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Which of the following is a positive sign that a company can quickly turn its receivables into cash? |
Both a high receivables turnover ratio and a low average collection period.
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Assume that Siebert Company has a current ratio of 1.13. If Siebert purchases inventory on account, the company's current ratio will go down |
True
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When using "vertical analysis," every item in the balance sheet is expressed as a percentage of total stockholders' equity. |
False
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Individual partners have the power to bind the business to a contract. |
mutual agency
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The correct order from the largest number of shares to the smallest number of shares is: |
authorized, issued, outstanding
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Designed to serve as a guide to states in the development of their corporate statutes. |
Model Business Corporation Act.
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A company's ability to pay its long-term liabilities. |
Solvency
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Which inventory cost flow assumption generally results in the highest reported amount for cost of goods sold when inventory costs are falling? |
FIFO
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Which of the following is an example of a conservative accounting practice? |
Adjust the allowance for uncollectible accounts to a larger amount
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When using vertical analysis, we express balance sheet amounts as a percentage of: |
Total assets
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Which of the following causes the accounting equation not to balance? |
Increase assets; increase dividends
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Recording depreciation expense on a piece of equipment is most similar to which of the following types of adjusting entries? |
Recording rent expense on a prepayment of rent
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Cash Flow Investing Activities |
Purchase equipment to be used in operations
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Cash Flow financing activities |
Pay amount owed to bank for previous borrowing, Sell common stock to investors
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"Decrease in accounts payable" is an item that would appear on a statement of cash flows prepared using the direct method |
False
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What appears on an Income Statement? |
Revenues and Expenses
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What appears on a Balance Sheet? |
Liabilities, Assets, Stockholders Equity
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Does Issuing Common Stock for Cash affect retained earnings? |
No
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What has a Normal Debit Balance? |
Assets and Expenses
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Find company's operating income |
(Net Sales-Cost of Goods Sold) - Operating Expenses
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Gross Profit |
net sales-cost of goods sold
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Average Cost Method |
(Total Cost/total # units) times units sold
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Activity Based Depreciation |
Depreciation Expense Per Unit * Units Produced or used
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Return on Assets= |
Net Income/Avg Total Assets (multiply by 100 for percentage)
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Profit Margin |
Net Income/Sales (multiply by 100 for percentage)
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Examples of Current Liabilites: |
Accounts Payable, Current portion of long-term debt, sales tax collected from customers, notes payable due next year, customer advances, commercial paper, a contingent liability with a probable likelihood of occurring within the next year and can be estimated
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Examples that are Not Reported: |
Unused line of credit and a contingent liability with a reasonably possible likelihood of occurring within the next year and can be estimated, Allowance for uncollectible accounts
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Issue Price |
(PV=SPPVF) + (PVA=APVAF)
^table 2 ^table 4
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debt-to-equity ratio |
Total Liabilities/Total Equity
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Interest Earned Ratio |
(Net Income+Interest Expense+Interest Tax Expense)/ Interest Expense
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Working Capital= |
Current Assets- Current Liabilities
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Return on Equity |
Net Income/Average Equity
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cash flows that would be reported in the operating activities section when prepared using the indirect method? |
Depreciation expense, Decrease in accounts receivable, Increase in inventory
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Gross profit ratio= |
gross profit/net sales
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