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ACCT 382 - Week 2 - Test 1

ACCT 382 - Week 2 - Test 1
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ACCT 382 - Week 2 - Test 1

1. The FASB is currently the public-sector organization responsible for setting accounting standards in the United States.

  • True
  • False

 

2.Auditors play an important role in the resource allocation process by adding credibility to financial statements.

  • True
  • False

 

 3.Materiality can be affected by the dollar amount of an item, the nature of the item, or both. 

  • True
  • False

 

4.Corporations issue their shares to the investing public in the:

 

Primary market

Secondary market

a.

Yes

Yes

b.

No

Yes

c.

Yes

No

d.

No

No

 

  • Option a
  • Option b
  • Option c
  • Option d

 

5.Which of the following groups is not among the external users for whom financial statements are prepared?

  • Customers.
  • Suppliers.
  • Employees.
  • All of the above are external users of financial statements.

 

6.Porite Company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash. Porite's practice is an example of:

  • Cash basis accounting.
  • Accrual accounting.
  • The matching principle.
  • Economic entity.

 

7.Which of the following is not a potential benefit of accrual accounting, compared to cash-basis accounting?

  • Timeliness.
  • Better reflecting economic activity.
  • Periodicity.
  • Better matching of revenues and expenses.

 

8.In a recent annual report, Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of:

  • Conservatism.
  • The matching principle.
  • Realization principle.
  • Economic entity.

 

9.The FASB issues accounting standards in the form of:

  • Accounting Research Bulletins.
  • Accounting Standards Updates.
  • Financial Accounting Standards.
  • Financial Technical Bulletins.

 

10.Independent auditors express an opinion on the: 

  • Fairness of financial statements.
  • Accuracy of financial statements.
  • Soundness of a company's future.
  • Quality of a company's management.

 

11.Surefeet Corporation changed its inventory valuation method. Which characteristic is jeopardized by this change?

  • Comparability.
  • Representational faithfulness.
  • Consistency.
  • Feedback value.

 

12.Recognizing expected losses immediately, but deferring expected gains, is an example of:

  • Materiality.
  • Conservatism.
  • Cost-effectiveness.
  • Timeliness.

 

13.Balance sheet accounts are referred to as temporary accounts because their balances are always changing.

  • True
  • False

 

14.Adjusting journal entries are required to comply with the realization and matching principles. 

  • True
  • False

 

15.The income statement summarizes the operating activity of a firm at a particular point in time.

  • True
  • False

 

16.The adjusted trial balance contains only permanent accounts. 

  • True
  • False

 

17.Examples of external transactions include all of the following except:

  • Paying employees salaries.
  • Purchasing equipment.
  • Depreciating equipment.
  • Collecting a receivable.

 

 

 

18.XYZ Corporation receives $100,000 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a:

  • Debit to investments.
  • Credit to retained earnings.
  • Credit to capital stock.
  • Credit to revenue.

 

19.Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of merchandise, costing $620 and sold for $960 on account? 

  Inventory

620

 

     Accounts receivable

 

620

  Sales

960

 

     Revenue from sales

 

960

 

    Accounts receivable

960

 

     Sales revenue

 

960

  Cost of goods sold

620

 

     Inventory

 

620

 

  Inventory

620

 

  Gain on sale

340

 

     Sales revenue

 

960

 

   Accounts receivable

960

 

     Sales revenues

 

620

     Gain on sale

 

340

 

 

 

20.Ace Bonding Company purchased merchandise inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase?  

  Inventory

2,000

 

     Accounts payable

 

2,000

 

   Cost of goods sold

2,000

 

  Deferred revenue

1,000

 

     Sales in advance

 

3,000

 

   Cost of goods sold

2,000

 

     Inventory payable

 

2,000

 

   Cost of goods sold

2,000

 

  Profit

1,000

 

     Sales payable

 

3,000

 

 

21.Recording revenue that is earned, but not yet collected, is an example of:

·         A prepaid expense transaction.

·         An unearned revenue transaction.

·         An accrued liability transaction.

·         An accrued receivable transaction.

 

22.Mama's Pizza Shoppe borrowed $8,000 at 9% interest on May 1, 2013, with principal and interest due on October 31, 2014. The company's fiscal year ends June 30, 2013. What adjusting entry is necessary on June 30, 2013? 

  No entry

0

 

     No entry

 

0

 

   Interest expense

240

 

     Interest payable

 

240

 

    Interest expense

120

 

     Interest payable

 

120

  Prepaid interest

120

 

     Interest payable

 

120

 

 

23.The purpose of closing entries is to transfer:

·         Accounts receivable to retained earnings when an account is fully paid.

·         Balances in temporary accounts to a permanent account.

·         Inventory to cost of goods sold when merchandise is sold.

·         Assets and liabilities when operations are discontinued.

 

24.Molly's Auto Detailers maintains its records on the cash basis. During 2013, Molly's collected $72,000 from customers and paid $21,000 in expenses. Depreciation expense of $5,000 would have been recorded on the accrual basis. Over the course of the year, accounts receivable increased $4,000, prepaid expenses decreased $2,000, and accrued liabilities decreased $1,000. Molly's accrual basis net income was: 

  • $38,000.
  • $54,000.
  • $49,000.
  • $42,000.

 

25.Pat's Custom Tuxedo Shop maintains its records on the cash basis. During this past year Pat's collected $42,000 in tailoring fees, and paid $14,000 in expenses. Depreciation expense totaled $2,000. Accounts receivable increased $1,500, supplies increased $4,000, and accrued liabilities increased $2,500. Pat's accrual basis net income was: 

  • $18,000.
  • $34,000.
  • $23,000.
  • $29,000.