Interm Mult Choice

Incurring an expense on account would be recorded with a

debit to an expense.

nder the gross method of accounting for purchases

• The purchase of inventory is recorded for its full amount.

• The amount paid for inventory during the discount period is the full amount of the purchase minus the discount.

• The amount paid for inventory after the discount period is the full amount of the purchase.

Marcella displays her artwork in local coffee shops for sale. If a painting sells, Marcella remits a 10% fee to the owner of the coffee shop; if a painting doesn’t sell, Marcella takes it back to her studio. This arrangement is an example of

A consignment arrangement

An item typically included in the income from continuing operations section of the income statement is

Restructuring costs.

The value today of receiving an amount in the future is referred to as the

present value of a single amount

Assume a prepayment is made six months in advance of delivery of a product. The seller is likely to do which of the following with respect to the time value of money over the life of the contract?

Ignore the time value of money

The net amount of property, plant, and equipment reported in the balance sheet generally is equal to

The assets’ original costs minus their accumulated depreciation since purchased

Which ratio most directly indicates the extent of the company's reliance on financial leverage?

Debt to equity

Which of the following captions would more likely be found in a multiple-step income statement?

Operating income

For a firm with a current ratio of 2.0, which of the following transactions would most likely cause the ratio to decrease?

The purchase of inventory on account

The ending balance of retained earnings can best be described as:

The amount of net income over the life of the company not paid to owners in the form of dividends.

Which of the following is not one of the steps for recognizing revenue?

Estimate the total transaction price of the contract based on the sum of the stand-alone selling prices of the goods and services in the contract.

Current assets minus current liabilities equals:

Working capital.

Allister Company does not use the allowance method to account for bad debts and instead any bad debts that do arise are written off as bad debt expense. What problem might this create if bad debts are material?

Receivables likely will be overstated.

Which of the following might be classified as a cash equivalent?

30-day treasury bill.

The closing process involves:

Transferring revenue and expense balances to retained earnings.

Which of the following is not an indicator that the seller may need to constrain recognition of variable consideration?

Based on much experience with the customer, the seller anticipates a more-than-remote chance that the receivable will prove uncollectible.

Which of the following is an acceptable way to estimate uncertain consideration?

Most likely amount to be received and expected value of the amount to be received.

Companies that purchase inventories that are primarily in finished form for resale to customers are known as:

Merchandising companies.

Which of the following is not an indicator that revenue for a service can be recognized over time?

The seller has significant experience with the customer and anticipates fulfillment of the contract.

A series of equal periodic payments that starts more than one period after the agreement is called:

A deferred annuity.

An item not generally classified as a current liability is:

Bonds payable.

Given a set of present value tables, an annual interest rate, the dollar amount of equal payments made, and the number of semiannual payments, what other information is necessary to calculate the present value of the series of payments?

The timing of the payments (whether they are at the beginning or end of the period).

Which of the following does not apply to a seller who is an agent?

Has control over goods or services

Which of the following is true about revenue recognition under ASC 606?

Collectibility of the receivable is considered when determining whether revenue can be recognized.

If the required adjusting entry for accrued salaries is omitted:

liabilities will be understated and net income overstated.

For a manufacturing company, each of the following items would be considered nonoperating income for income statement purposes except:

COGS

Which of the following is an indicator that revenue for a service can be recognized over time?

The seller is enhancing an asset that the buyer controls as the service is performed.

The acid-test ratio excludes which of the following elements from the numerator?

Inventories

Which of the following items would not be included as a cash flow from operating activities in a statement of cash flows?

Purchase of equipmen

Using a perpetual inventory system, the purchase of inventory on account is recorded with a:

Debit to inventory.

Which of the following items represents cash received from customers for goods or services to be provided in a future period?

Deferred Rev

Relevance requires that information possess predictive and/or:

Confirmatory value.

The journal entry to record the purchase of supplies for cash involves:

a debit to supplies and a credit to cash.

Which of the following is not a characteristic of the balance sheet?

The balance sheet reports the change in financial position.

If the required adjusting entry for prepaid rent that has expired for the period is omitted

assets will be overstated and net income overstated.

Identify the statement below concerning the LIFO inventory method that is untrue

The ending inventory under LIFO will tend to approximate replacement cost.

Which inventory method typically most closely matches the actual flow of inventory being sold?

FIFO

A multiple-step income statement and a single-step income statement would report the same subtotal for which of the following amounts?

Income before taxes.

The underlying assumption that assumes that the life of a company can be divided into artificial time periods is

Periodicity.

Danielle wants to know how much to invest today at 5% interest in order to accumulate a sum of $45,000 in four years. Which time value concept would be used to compute this amount?

Present value of $1

Which of the following is NOT true about accounting for merchandise returns?

The refund liability is credited when a customer makes a return

In the current year, a company has a gain of $50,000. The company’s accountant is deciding whether to report this gain as part of nonoperating income in the income statement or as part of other comprehensive income. Which of the following is true?

Retained earnings will be greater if the gain is reported as part of net income.

A prepaid expense:

occurs when an asset is acquired in the current period but not expensed until a future period.

An internal control system is designed to do all but which of the following?

Assure the promotion of the most qualified employees.

Bad debts:

Must be recognized as an expense

A company that sells a large quantity of inventory in a competitive industry would likely have which of the following?

Low gross profit ratio and high inventory turnover ratio

The deferred revenue account is a(n): 

liability account.

The journal entry to record the borrowing of cash and the signing of a note payable involves:

a debit to cash and a credit to note payable.

The two primary decision-specific qualities that make accounting information useful are:

Relevance and faithful representation.

Which of the following characteristics does not describe a liability?

Must be legally enforceable.

An “unqualified” opinion in the auditor’s report provides the opinion that:

The financial statements are presented in conformity with generally accepted accounting principles (GAAP).

Which of the following adjusting entries causes a decrease in assets?

Recording depreciation expense

Which of the following describes the modified retrospective approach to implementing a change in accounting principle?

The new standard is applied only to the current period and all future periods, and the cumulative effects of prior periods is shown as an adjustment to retained earnings.

The underlying assumption that presumes a company will continue indefinitely is:

Going concern.

The Compton Press Company reported income before taxes of $250,000. This amount included a $50,000 loss on discontinued operations. The amount reported as income from continuing operations, assuming a tax rate of 25%, is:

$225,000

he replenishment of a petty cash fund might include which of the following

A debit to office supplies expense.

In a statement of cash flows, International Financial Reporting Standards allow companies to report interest paid as:

Either an operating or a financing cash flow.

Which of the following is typically treated as a separate performance obligation?

Extended warranty.

In a perpetual inventory system, if merchandise is returned to a supplier

Inventory is credited.

Which of the following is considered a practical constraint on the qualitative characteristics?

Cost effectiveness.

Which of the following is NOT true about accounting for a troubled debt restructuring?

If a receivable is continued, but with modified terms, no loss is typically recorded.

LIFO liquidation profits occur when:

Costs are rising and inventory quantity declines

Included in the category of current assets would be:

investment in debt securities that mature in five years but which management intends to sell within one year.

A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is:

An ordinary annuity.

Information not generally disclosed in the summary of significant accounting policies is:

A related-party transaction.

The type of financial information to external decision makers is referred to as:

Financial accounting.

Using a perpetual inventory system, the sale of inventory on account is recorded with a:

• Debit to cost of goods sold.

• Credit to inventory.

• Credit to sales revenue.

All of the other answers are recorded with the sale of inventory on account.

The asset/liability approach:

Recognizes amounts in the income statement necessary to account for the changes in assets and liabilities from the previous measurement date.

In the double-entry system, debit means:

Left

Which of the following is true?

Licenses for functional intellectual property can be viewed as conveying a right of use.

Loan A has the same original principal, interest rate, and payment amount as Loan B. However, Loan A is structured as an annuity due, while Loan B is structured as an ordinary annuity. The present value of Loan A will be:

higher than Loan B.

Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, which of the following is true of Company A compared to Company B?

Company A's gross profit is higher and inventory turnover is lower.

The financial statement which reports investments from owners and distributions to owners during a particular period is:

statement of shareholders’ equity.

We can state the accounting equation for a corporation as:

A − L − SE = 0.

How does simple interest differ from compound interest?

Simple interest includes interest earned on the initial investment only.

International Financial Reporting Standards allow companies to use each of the following inventory valuation methods except:

LIFO.

Earnings per share should be reported for each of the following income statement captions except:

Operating income.

Providing services to customers on account would be recorded with a:

debit to an asset.

Which of the following is true regarding a company assuming more debt?

Assuming more debt can be good for the company as long as it earns a return in excess of the rate charged on the borrowed funds.

Which of the following is true about cash reporting under IFRS?

Overdrafts in one cash account can typically be offset against positive balance in other cash accounts.

The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of:

A change in accounting principle

An item not generally classified as a current asset is a:

Patent

The accounting processing cycle:

is the process used to identify, analyze, record, and summarize transactions and prepare financial statements.

When accounting for a long-term construction contract for which revenue is recognized over time according to the percentage of completion, gross profit is recognized in any year and is debited to:

Construction in progress.

Comprehensive income equals:

The change in equity from transactions with nonowners.

Which of the following adjusting entries causes an increase in liabilities?

Accruing unrecorded interest expense

Which of the following is a separate performance obligation?

An extended warranty

A company had a decrease in the LIFO reserve during the year from $40,000 to $30,000. Which of the following would be true (ignore tax effects)?

• Reported profits are higher under LIFO than under FIFO by $10,000 for that year.

• Ending inventory is higher under FIFO than under LIFO by $30,000 at the end of the year.

• Cost of goods sold is higher under FIFO than under LIFO by $10,000 for that year.

The basis used to classify assets as current or long-term is:

Usually one year, because the operating cycle typically is less than one year.

A series of equal periodic payments in which the first payment is made on the beginning date of the contract is:

An Annuity Due

For profitable long-term contracts, income is recognized in each year when revenue is recognized:

Revenue is only recognized each year if revenue qualifies for recognition over time.

The closing entry for revenues involves:

a debit to revenues and a credit to retained earnings.

In a bank reconciliation, NSF checks are:

Subtracted from the book balance.

In a statement of cash flows, cash received from the issuance of common stock would be classified as a:

Financing activity

In general, revenue is recognized when:

goods or services are transferred to the customer

The application of intraperiod income taxes requires that income taxes be apportioned to each of the following items except:

Operating income.

Which of the following provides the best explanation for why accounts receivable are normally classified as current assets in the balance sheet?

Because these amounts typically will be collected within one year.

The primary objective of financial reporting is to provide information:

That is useful in decision making.

Which of the following is not a factor in encouraging high-quality financial reporting?

The Sarbanes-Oxley Act, financial-statement auditors, and internal control systems all encourage high-quality reporting.