Financial Accounting - Final Exam

Which of the following organizations can use financial statements?

Individuals

Investors and creditors

Regulatory bodies

Jonathan is a patent attorney and is starting a legal practice. What form of business organization limits his liability to the amount he has invested in the business?

Corporation

To be useful, information must have which of the following fundamental qualitative characteristics?

Relevance and faithful representation

The accounting equation can be expressed as

Assets – Liabilities = Equity

The costs of doing business are classified as

Expenses

During the year, FastClean Corporation has $310,000 in revenues, $145,000 in expenses, and $11,000 in dividend declarations and payments. Net income for the year was

165,000

How would the issuance of common stock for cash affect the accounting equation?

Increase assets and increase stockholders’ equity

Which financial statement would show how well a company performed over the past year?

Income statement

On which financial statement would the ending balance of the account “accounts receivable” be found?

Balance Sheet

Amounts owed to a company by its customers would be

Accounts Receivable

Ivy Company purchases a new delivery truck and signs a note payable at the truck dealership for the total cost. The impact of this transaction on Ivy Company would be to

increase assets and increase liabilities

Fletcher Corporation completed a consulting job and billed the customer $10,000. The impact on Fletcher Corporation from this transaction would be to

increase assets and increase stockholders’ equity

Accounts Payable will appear on which of the following financial statements?

Balance Sheet

Which of the following debit and credit rules is correct?

Increases in liabilities and stockholders’ equity are credited.

A credit entry to an account will

increase liabilities

In a double-entry accounting system,

a debit entry is recorded on the left side of a T-account.

Which is the correct sequence for recording transactions and preparing financial statements?

Journal, ledger, trial balance, financial statements

If Oxbow Corporation does not record a sale made on account in December until a month later when the customer pays its invoice, how will Oxbow’s December financial statements be impacted?

Assets will be understated on the balance sheet, while revenues will be understated on the income statement.

According to U.S. GAAP, when should revenue be recognized?

When the service is performed or the goods have been delivered to the customer

All of the following are types of adjusting entries except

transactions

You would find asset, liability, and equity accounts on which of the following statements?

Balance Sheet

Which of the following accounts would be closed at the end of the period?

Supplies Expense

How are the assets and liabilities ordered on the balance sheet?

Based on liquidity (most liquid to least liquid)

A weak internal control system is which element in the fraud triangle?

Opportunity

Each of the following represents an internal control procedure except for

clear lines of authority and communication

Which law or regulation requires that public companies must maintain strong internal control systems?

Sarbanes-Oxley Act

On July 15, Gunderson Company sold and shipped merchandise on account for $6,000 to a customer, terms FOB shipping point, n/30. Gunderson’s cost of goods sold is 40% of sales. How is Gunderson impacted by this sale on July 15?

Its assets will increase, as will its equity.

Saturn Corporation received a four-month, 9%, $2,800 note receivable on March 1. The adjusting entry on March 31 will include

a credit to Interest Revenue for $21.

If the adjusting entry to accrue interest on a note receivable is omitted, then

assets, net income, and stockholders’ equity are understated

Net credit sales total $1,883,550. Beginning and ending accounts receivable are $73,000 and $56,900, respectively. Calculate the days’ sales outstanding.

13 days

Yoder Furniture recently purchased lamps for resale in its shops. Which of the following costs would be part of the cost of the lamp inventory?

Freight In

Which inventory system maintains a running record of inventory on hand, purchased, and sold?

Perpetual

Crater Corporation purchased land for a new building. Which of the following costs would not be included in the cost of the land?

Cost of a new parking lot constructed on the land

Thomastown Corporation purchased a new delivery van on the last day of its fiscal year. The cost of the delivery van will appear on Thomastown’s ___________ in the year of purchase.

Balance Sheet

When a company expenses the cost of maintenance for its fleet of delivery vehicles, that cost will appear on its

Income Statement

Capitalizing a cost involves increasing what type of account?

Asset

Kipple Corporation purchased a forklift for $50,000 on July 1. The forklift has an estimated useful life of 30,000 usage hours with a residual value of $2,000. Kipple uses the units-of-production method for depreciation. If Kipple uses the forklift for 7,000 hours during the first year, the depreciation expense on the forklift would be

11,200

The depreciation method that does not initially use the residual value in depreciation calculations is the

double-declining balance method.

Which of the following is an intangible asset?

Patent

The purchase of new equipment with cash would appear on the statement of cash flows as a(n)

Investing Cash Flow

Which of the following is not a liability?

Allowance for bad debt

Accounts payable turnover for Maskette Industries increased from 10 to 12 during its most recent fiscal year. Which of the following statements best describes what this means?

The company paid its accounts payable more quickly during the year, signaling a stronger liquidity position

Eugenia Corporation accrues the interest expense on a short-term note payable at the end of its fiscal year. Due to this transaction

current liabilities will increase and stockholders’ equity will decrease

Fisher-Wallace Corporation signed a six-month note payable on October 23, 2021. What accounts relating to the note payable will be reported on its financial statements for the fiscal year ending December 31, 2021?

Notes payable and interest payable will be reported on the balance sheet

Potential liabilities that depend on future events arising out of past events are called

Contingent Liabilities

The two main categories of stockholders’ equity are

retained earnings and paid-in capital

A company might purchase treasury stock for all of the following reasons except

management wants to decrease the earnings per share of common stock.

How does the declaration of a cash dividend affect a company’s assets, liabilities, and equity?

It results in an increase to liabilities and a decrease to stockholders’ equity, while assets remain the same.

Return on equity

is a measure used to compare companies of different sizes

The statement of cash flows is designed for all of the following purposes except

to list all revenues and expenses

The statement of cash flows does not report

Revenues and expenses for the current year

Which of the three types of activities reported on the statement of cash flows is the most important to evaluate when analyzing a company’s long-term survival?

Operating Activities

On the statement of cash flows, which of the following items is classified as a financing activity?

Borrowing cash by signing a long-term note

When using the indirect method of preparing the statement of cash flows, the starting point to determine net cash provided by operating activities is

Net Income

In 2021, Conclave Company repurchased its own stock at a cost of $52,000. During the year, the company purchased land with cash for $125,000 and issued bonds payable for $575,000. Net cash provided by financing activities for the year would have been

523,000