McGrawHill Accounting Final Review

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

Financial Accounting

Financial statements generally include all of the following except:

Federal income tax return

The primary objective of financial reporting is to provide information:

That is useful in decision making

GAAP includes which of the following pronouncements:

• Statements of Financial Accounting Standards.

• Accounting Research Bulletins.

• Accounting Principles Board Opinions.

The SEC exerts a continuing influence on the establishment of accounting standards. It does so primarily be:

Monitoring the development of GAAP within the accounting profession and using its stature to influence that development.

The documents that set forth fundamental concepts on which financial accounting and reporting standards will be based are:

Statements of Financial Accounting Concepts.

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

Relevance and faithful representation.

Relevance requires that information possess predictive and/or:

Confirmatory value.

The qualitative characteristic that means there is agreement between a measure and a real-world phenomenon is:

Representational faithfulness.

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

Cost effectiveness.

Which of the following characteristics does not describe an asset?

Requires the receipt of cash.

Which of the following characteristics does not describe a liability?

Must be legally enforceable.

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

Going concern.

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

Periodicity

In general, revenue is recognized when:

goods or services are transferred to the customer.

Fernblatt Incorporated 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. Fernblatt’s accounting approach is an example of:

accrual accounting

The main objective of the IASB is to:

Develop a single set of global accounting standards.

Which of the following is not true about accounting for stock compensation?

Political pressure has not been exerted relevant to accounting for stock compensation.

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

• The Sarbanes-Oxley Act.

• Auditors who attest to a company’s financial statements.

• Internal control systems.

• All of these are factors encouraging high-quality financial reporting.

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.

The accounting processing cycle:

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

A collection of all of the company’s various accounts and their balances is:

a ledger.

In the double-entry system, debit means:

left.

A chronological record of all economic events affecting a firm is provided by a:

a journal.

A list of the general ledger accounts and their balances at a particular date, showing total debits equal total credits, is a:

Trial balance.

Danielle Corporation received $2,000,000 from investors and issued them shares of its stock. Danielle's journal entry to record this transaction would include a:

credit to common stock.

Incurring a cost on account related to providing services in the current period would be recorded with a:

debit to an expense.

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

debit to an asset.

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

a debit to supplies and a credit to cash.

The journal entry to record cash received from customers who previously were provided services on account involves:

a debit to cash and a credit to accounts receivable.

The reason we post journal entries is to

reflect the information in journal entries in ledger accounts.

We can state the accounting equation for a corporation as:

A − L = SE.

Which of the following is most likely an accrued liability?

Interest on borrowing

A prepaid expense:

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

The Esquire Clothing Company borrowed a sum of cash on October 1, Year 1, and signed a note payable. The annual interest rate was 12%. The company's December 31, Year 1, income statement reported interest expense of $1,260 related to this note. What was the amount borrowed?

$42,000

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

Recording depreciation expense

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

Accruing interest expense

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

assets will be overstated and net income will be overstated.

The deferred revenue account is a(n):

liability account.

Prepaid insurance at the beginning of the year was $900. During the year, the company paid an additional insurance premium of $600. In the year-end balance sheet, the amount of prepaid insurance was correctly shown as $500. The amount of insurance expense that should appear in the company's income statement is:

$1,000.

If the required adjusting entry for accrued salaries is omitted:

liabilities will be understated and net income will be overstated.

A company’s deferred subscription revenue at the beginning of the year was $11,200. During the year, $62,000 was received from customers for subscriptions, and the company reported $63,700 of subscription revenue for the year in its income statement. What is the amount reported for deferred subscription revenue in the year-end balance sheet?

$9,500

Which of the following best describes the income statement?

A summary of the profit-generating activities of a company that occurred during a particular reporting period

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

statement of shareholders’ equity.

In a classified balance sheet, supplies generally would be classified among:

current assets.

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

Financing activity.

The closing process involves:

Transferring revenue and expense balances to retained earnings.

The closing entry for revenues involves:

a debit to revenues and a credit to retained earnings.

For the year, a company reports revenues of $800,000, expenses of $600,000, and dividends of $50,000. By how much will the balance of retained earnings increase for the year?

$150,000