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Accounting Test 2

Question 1 of 25

1

If a company reported the following items on its income statement...

Cost of goods sold: $6,000
income tax expense: $2,000
interest expense: $500
operating expenses: $3,500
sales revenue: $14,000

what amount would be reported for the subtotal "income from operations"?

Select one of the following:

  • $8,000

  • $2,000

  • $4,500

  • $4,000

Explanation

Question 2 of 25

1

Which of the following is not a normal function of a financial analyst?

Select one of the following:

  • Issue earnings forecasts.

  • Examine the records underlying the financial statements to certify their conformance with GAAP.

  • Make buy, hold, and sell recommendations on companies' stock.

  • Advise institutional investors on their securities holdings.

Explanation

Question 3 of 25

1

The classified balance sheet format allows one to ascertain quickly which of the following?

Select one of the following:

  • The most valuable asset of the company.

  • The specific due date for all liabilities of the company.

  • What liabilities must be paid within the upcoming year.

  • None of the above.

Explanation

Question 4 of 25

1

When a company issues stock with a par value, what columns are typically presented in the statement of stockholders' equity?

Select one of the following:

  • Common Stock
    Additional Paid-In Capital
    Property, Plant and Equipment

  • Cash
    Property, Plant and Equipment

  • Common Stock
    Additional Paid-In Capital
    Retained Earnings

  • Common Stock
    Additional Paid-In Capital
    Cash

Explanation

Question 5 of 25

1

When a company using the allowance method writes off a specific customer's $100,000 account receivable from the accounting system, which of the following statements are true?

1. Total stockholders' equity remains the same.
2. Total assets remain the same.
3. Total expenses remain the same.

Select one of the following:

  • 2

  • 1 and 3

  • 1 and 2

  • 1, 2 and 3

Explanation

Question 6 of 25

1

When using the allowance method, as bad debt expense is recorded,

Select one of the following:

  • Total assets remain the same and stockholders' equity remains the same.

  • Total assets decrease and stockholders' equity decreases.

  • Total assets increase and stockholders' equity decreases.

  • Total liabilities increase and stockholders' equity decreases.

Explanation

Question 7 of 25

1

The inventory costing method selected by a company will affect

Select one of the following:

  • The balance sheet.

  • The income statement.

  • The statement of retained earnings.

  • All of the above.

Explanation

Question 8 of 25

1

Which of the following is not a component of the cost of inventory.

Select one of the following:

  • Administrative overhead

  • direct labor

  • raw materials

  • factory overhead

Explanation

Question 9 of 25

1

An increasing inventory turnover ration

Select one of the following:

  • Indicates a longer time span between the ordering and receiving of inventory.

  • Indicates a shorter time span between the ordering and receiving of inventory.

  • Indicates a shorter time span between the purchase and sale of inventory.

  • Indicates a longer time span between the purchase and sale of inventory.

Explanation

Question 10 of 25

1

Which of the following regarding the lower of cost or market rule for inventory are true?

1. The lower of cost or market rule is an example of the historical cost principle.
2. When the replacement cost of inventory drops below the cost shown in the financial records, net income is reduced.
3. When the replacement cost of inventory drops below the cost shown in the financial records, total assets are reduced.

Select one of the following:

  • 1

  • 2

  • 2 and 3

  • all three

Explanation

Question 11 of 25

1

Which inventory method provides a better matching of current costs with sales revenue on the income statement and outdates values for inventory on the balance sheet?

Select one of the following:

  • FIFO

  • Average cost

  • LIFO

  • Specific identification

Explanation

Question 12 of 25

1

Which of the following is false regarding a perpetual inventory system?

Select one of the following:

  • Physical counts are not needed since records are maintained on a transaction-by-transaction basis.

  • The balance in the inventory account is updated with each inventory purchase and sale transaction.

  • Cost of goods sold is increased as sales are recorded.

  • The account Purchases is not used as inventory is acquired.

Explanation

Question 13 of 25

1

Under what method(s) of depreciation is an asset's net book value the depreciable base (the amount to be depreciated)?

Select one of the following:

  • straight-line method

  • declining-balance method

  • units-of-production method

  • all of the above

Explanation

Question 14 of 25

1

A company wishes to report the highest earnings possible for financial reporting purposes. Therefore, when calculating depreciation,

Select one of the following:

  • It will follow the MACRS depreciation tables prescribed by the IRS.

  • It will select the shortest lives possible for its assets.

  • It will select the lowest residual values for its assets.

  • It will estimate higher residual values for its assets.

Explanation

Question 15 of 25

1

How many of the following statements regarding goodwill are true?

-Goodwill is not reported unless purchased in an exchange.
-Goodwill must be reviewed annually for possible impairment.
-Impairment of goodwill results in a decrease in net income.

Select one of the following:

  • 3

  • 2

  • 1

  • none

Explanation

Question 16 of 25

1

When recording depreciation, which of the following statements is true?

Select one of the following:

  • Total assets increase and stockholders' equity increases.

  • Total assets decrease and total liabilities increase.

  • Total assets decrease and stockholders' equity increases.

  • None of the above are true.

Explanation

Question 17 of 25

1

The proper treatment of outstanding checks on the bank reconciliation requires:

Select one of the following:

  • adding them back to the book balance of cash.

  • adding them back to the bank balance of cash

  • deducting them from the book balance of cash.

  • deducting them from the bank balance of cash.

Explanation

Question 18 of 25

1

The unadjusted debit balance of the Allowance for Doubtful Accounts account is $350. Uncollectible accounts are estimated to be $15,800, based on the percent of sales method. After recording the appropriate journal entry for the bad debts expense, what will be the balance of the Bad Debt Expense account?

Select one of the following:

  • $15,800

  • $15,450

  • $16,150

  • $350

Explanation

Question 19 of 25

1

The unadjusted credit balance of the Allowance for Doubtful Accounts account is $350. Uncollectible accounts are estimated to be $15,800, based on an analysis of a schedule of aging of accounts receivable. After recording the appropriate journal entry for the bad debts expense, what will be the balance of the Bad Debt Expense account?

Select one of the following:

  • $15,800

  • $15,450

  • $16,150

  • $350

Explanation

Question 20 of 25

1

During periods of rising prices, which of the following is true?

Select one of the following:

  • The use of FIFO will result in smaller net income than LIFO.

  • The use of FIFO will result in a larger cost of goods sold than LIFO.

  • The use of LIFO will result in a smaller cost of goods sold than FIFO.

  • The use of FIFO will result in a higher ending inventory than LIFO.

Explanation

Question 21 of 25

1

Consider the following:

ITEM A:
Units on hand = 2,000
Cost/Unit = $5.00
Market/Unit = $5.50

ITEM B:
Units on hand = 3,000
Cost/Unit = $4.50
Market/Unit = $3.00

Using the lower of cost or market rule applied on an item-to-item basis., what will be the value of the ending inventory reported on the balance sheet?

Select one of the following:

  • $23,500

  • $20,000

  • $19,000

  • $24,500

Explanation

Question 22 of 25

1

Inventory at the end of the current period was understated because one bin of inventory was not counted and its value not included in the ending inventory totals. Because of this error:

Select one of the following:

  • net income for the period was overstated.

  • net income for the following period will be overstated.

  • the cost of goods sold for the current period was understated.

  • total equity for the current year is overstated.

Explanation

Question 23 of 25

1

An asset with an estimated 5-year useful life and an estimated residual value of $5,000 was purchased for $22,000 cash plus a $500 delivery fee on the first day of the fiscal year. Using the straight-line method, determine the depreciation expense for the second fiscal year?

Select one of the following:

  • $3,400

  • $3,500

  • $4,500

  • $4,800

Explanation

Question 24 of 25

1

An asset with an estimated 10-year useful life and an estimated residual value of $5,000 was purchased for $28,000 cash on the first day of the fiscal year. Based on the declining balance method at twice the straight-line rate, what is the depreciation expense for the second fiscal year.

Select one of the following:

  • $3,680

  • $5,600

  • $4,480

  • $4,000

Explanation

Question 25 of 25

1

Goodwill as reported in a balance sheet:

Select one of the following:

  • is a favorable reputation.

  • only occurs when one company purchases another company.

  • is the increase in sales caused by customers satisfaction.

  • is never reported on a balance sheet.

Explanation

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