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ACC 102 Midterm Review Questions

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ACC 102 Midterm Review Questions

Question 1 of 104

1

When compound interest is used, interest accumulates less quickly than when simple interest is used.

Select one of the following:

  • True
  • False

Explanation

Question 2 of 104

1

The annual interest earned on an amount deposited into a bank account will be the same each year when compound interest is used.

Select one of the following:

  • True
  • False

Explanation

Question 3 of 104

1

An ordinary annuity is a series of equal payments made at the end of equal intervals of time.

Select one of the following:

  • True
  • False

Explanation

Question 4 of 104

1

In a deferred payment arrangement, interest is charged only if it is stated.

Select one of the following:

  • True
  • False

Explanation

Question 5 of 104

1

If the net present value of a proposed investment is negative, it means that the investment should not be made.

Select one of the following:

  • True
  • False

Explanation

Question 6 of 104

1

* Assets purchased under a deferred payment plan should be recorded at the future value of the installment payments.

Select one of the following:

  • True
  • False

Explanation

Question 7 of 104

1

Decision makers rely on the future values, rather than on the present values, of future cash flows.

Select one of the following:

  • True
  • False

Explanation

Question 8 of 104

1

Use this information to answer the following question:
Periods Future Value of $1 at 12% Future Value of Ordinary Annuity of $1 at
(1) 1.120 1.000
(2) 1.254 2.120
(3) 1.405 3.374

A deposit of $2,000 made at the beginning of period 1 would grow to how much at the end of three years?

Select one of the following:

  • $2,240.00

  • $2,810.00

  • $2,508.00

  • $6,748.00

Explanation

Question 9 of 104

1

Which of the following phrases is NOT descriptive of an ordinary annuity?

Select one of the following:

  • Payments made at the beginning of equal periods of time

  • Both present and future value can be calculated

  • Compound interest assumed

  • Series of equal payments

Explanation

Question 10 of 104

1

The higher the interest rate assumed, the

Select one of the following:

  • higher the present value of an ordinary annuity.

  • more one must deposit today to accumulate to a desired sum.

  • lower the future value of a sum invested in the bank today.

  • lower the present value of a sum due in the future.

Explanation

Question 11 of 104

1

Heidi wishes to deposit an amount into her savings account that will enable her to withdraw $800 per year for the next four years. She should deposit $800, multiplied by the

Select one of the following:

  • present value of a single sum factor.

  • present value of an ordinary annuity factor.

  • future value of a single sum factor.

  • future value of an ordinary annuity factor.

Explanation

Question 12 of 104

1

First City Bank computes interest semiannually. If the interest rate is currently 6% per annum, the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years?

Select one of the following:

  • 20 periods at 12%

  • 20 periods at 3%

  • 10 periods at 6%

  • 10 periods at 3%

Explanation

Question 13 of 104

1

* A company purchases an asset on a deferred payment plan, ultimately paying $10,000. On the payment date, the company would

Select one of the following:

  • credit Cash for less than $10,000.

  • debit Interest Expense for the imputed amount.

  • debit the asset account for $10,000.

  • debit Accounts Payable for $10,000.

Explanation

Question 14 of 104

1

SHORT ANSWER! - (LOOK AT TABLES!)

--What is the present value of receiving $1,000 at the end of each year for 6 years, assuming 7% interest compounded annually?---

--What amount must be deposited at the bank today to grow to $300 in 5 years, assuming 14% interest compounded semiannually?--

Select one of the following:

  • 1,000 x 4.67 = $4,767
    ---
    300 x .508 = $152.40

  • Do the math!!

Explanation

Question 15 of 104

1

Extraordinary gains/losses are a component of income from operations.

Select one of the following:

  • True
  • False

Explanation

Question 16 of 104

1

A gain on the sale of an asset is a component of income from operations.

Select one of the following:

  • True
  • False

Explanation

Question 17 of 104

1

The quality of a company's earnings is affected by the accounting estimates chosen by the company's management.

Select one of the following:

  • True
  • False

Explanation

Question 18 of 104

1

If the amount of income taxes expense exceeds the amount of actual income taxes payable for a year, the difference is recorded by a debit to a balance sheet account called Deferred Income Taxes.

Select one of the following:

  • True
  • False

Explanation

Question 19 of 104

1

Discontinued operations and extraordinary items should be reported in the financial statements of "net of tax."

Select one of the following:

  • True
  • False

Explanation

Question 20 of 104

1

Gains and losses caused by the passage of a new law should be classified as extraordinary on the income statement.

Select one of the following:

  • True
  • False

Explanation

Question 21 of 104

1

A business with 100,000 shares of stock outstanding for three months would use a weighted-average 25,000 shares in its EPS calculation.

Select one of the following:

  • True
  • False

Explanation

Question 22 of 104

1

A company with convertible bonds is considered to have a complex capital structure.

Select one of the following:

  • True
  • False

Explanation

Question 23 of 104

1

A debit balance in the Retained Earnings account is referred to as a deficit.

Select one of the following:

  • True
  • False

Explanation

Question 24 of 104

1

A synonymous phrase for retained earnings is accumulated earnings.

Select one of the following:

  • True
  • False

Explanation

Question 25 of 104

1

When common stock is originally issued, its market value per share should approximate its par or stated value per share.

Select one of the following:

  • True
  • False

Explanation

Question 26 of 104

1

Par value or stated value is arbitrarily set when stock is authorized.

Select one of the following:

  • True
  • False

Explanation

Question 27 of 104

1

Which of the following is not a component of income from operations?

Select one of the following:

  • costs and expenses

  • write-downs of assets

  • extraordinary losses

  • restructuring

Explanation

Question 28 of 104

1

When alternative acceptable accounting methods exist, a better quality of earnings generally is produced from selecting an accounting method that has the effect of reporting the

Select one of the following:

  • lowest amount of future earnings

  • greatest amount of retained earnings currently

  • lowest amount of current earnings

  • greatest amount of assets currently

Explanation

Question 29 of 104

1

Which of the following is analyzed when a financial statement reader is looking at the nature of nonoperating items?

Select one of the following:

  • discontinued operations

  • interest expense

  • interest revenue

  • cost of goods sold

Explanation

Question 30 of 104

1

An excess of income taxes expense over income taxes payable will result in recording a

Select one of the following:

  • debit to Deferred Income Taxes

  • debit to Income Taxes Payable

  • credit to Deferred Income Taxes

  • credit to Prior Period Adjustment

Explanation

Question 31 of 104

1

Because noncash investing and financing transactions do not affect cash, they should be excluded from the statement of cash flows.

Select one of the following:

  • True
  • False

Explanation

Question 32 of 104

1

The payment of taxes would be included in the operating activities section of the statement of cash flows.

Select one of the following:

  • True
  • False

Explanation

Question 33 of 104

1

The payment of taxes would be included in the operating activities section of the statement of cash flows.

Select one of the following:

  • True
  • False

Explanation

Question 34 of 104

1

A U.S. treasury bill with an original maturity of one year or less is considered cash equivalent.

Select one of the following:

  • True
  • False

Explanation

Question 35 of 104

1

The primary purpose of the statement of cash flows is to provide information about a company's investing and financing activities during an accounting period.

Select one of the following:

  • True
  • False

Explanation

Question 36 of 104

1

A negative free cash flow indicates that the company has met all its planned cash commitments and has cash available to reduce debit or expand.

Select one of the following:

  • True
  • False

Explanation

Question 37 of 104

1

A decrease in the balance of merchandising inventory is added to net income when calculating net cash flows from operating activities using the indirect method.

Select one of the following:

  • True
  • False

Explanation

Question 38 of 104

1

Cash inflows and outflows are not netted in the investing activities section of the statement of cash flows but are separately disclosed to give the reader full information.

Select one of the following:

  • True
  • False

Explanation

Question 39 of 104

1

Dividends paid are reflected in the financing activities section of the statement of cash flows.

Select one of the following:

  • True
  • False

Explanation

Question 40 of 104

1

The net income for the period would appear in the cash flows from financing activities section of a statement of cash flows prepared using the indirect method.

Select one of the following:

  • True
  • False

Explanation

Question 41 of 104

1

A schedule of noncash investing and financing activities is not required when a statement of cash flows is prepared using the indirect method.

Select one of the following:

  • True
  • False

Explanation

Question 42 of 104

1

Cash equivalents do not include

Select one of the following:

  • U.S. treasury bills

  • money market accounts

  • marketable securities

  • commercial paper

Explanation

Question 43 of 104

1

Management would not use the statement of cash flows to

Select one of the following:

  • access the liquidity of the business

  • determine dividend policy

  • evaluate the effects of major policy decisions involving investments and financing

  • determine the financial position of the company

Explanation

Question 44 of 104

1

A Corporation engaged in the transaction:
Declared and issued a stock dividend. Indicate which section, if any, each transaction would appear in, or relate to, on a statement of cash flows.

Select one of the following:

  • financing activities section

  • operating activities section

  • does not represent a cash flow

  • investing activities section

Explanation

Question 45 of 104

1

The direct method of preparing a statement of cash flows

Select one of the following:

  • is the overwhelming choice of most companies

  • begins with net income in the operating activities section

  • is more difficult to understand than the indirect method for the average reader

  • will produce more the same net figure as the indirect method

Explanation

Question 46 of 104

1

The calculation of free cash flow could include all of the following except:

Select one of the following:

  • cash purchase of plant assets

  • net cash flows from operating activities

  • net income

  • dividends paid

Explanation

Question 47 of 104

1

Per the Sarbanes-Oxley Act of 2002, public corporations must establish a compensation committee to determine how its top executives will be compensated.

Select one of the following:

  • True
  • False

Explanation

Question 48 of 104

1

Liquidity is the ability to earn a satisfactory net income

Select one of the following:

  • True
  • False

Explanation

Question 49 of 104

1

Investors, creditors and customers are considered external users of financial statements.

Select one of the following:

  • True
  • False

Explanation

Question 50 of 104

1

The analysis of risk and return is important to both investors and creditors.

Select one of the following:

  • True
  • False

Explanation

Question 51 of 104

1

A limitation of using industry norms in financial performance evaluation is that some companies in the same industry may not be comparable.

Select one of the following:

  • True
  • False

Explanation

Question 52 of 104

1

A 20% change in net sales will result in a 20% change in net income.

Select one of the following:

  • True
  • False

Explanation

Question 53 of 104

1

Vertical analysis is the same as common-size analysis

Select one of the following:

  • True
  • False

Explanation

Question 54 of 104

1

It is possible for horizontal analysis to indicate a decrease in revenues from one year to another and an increase in net income.

Select one of the following:

  • True
  • False

Explanation

Question 55 of 104

1

A primary purpose of vertical analysis is to observe trends over a 5 year period.

Select one of the following:

  • True
  • False

Explanation

Question 56 of 104

1

Ration analysis is useful only if the ratio states a meaningful relationship between two numbers.

Select one of the following:

  • True
  • False

Explanation

Question 57 of 104

1

Executive officers' compensation is typically comprised of all of the following except:

Select one of the following:

  • inventive bonuses

  • declared dividends

  • stock option awards

  • annual base salaries

Explanation

Question 58 of 104

1

Which of the following is the least useful in evaluating a relationship as either favorable or unfavorable?

Select one of the following:

  • past and current performances company

  • industry averages

  • past performance of the company

  • rule-of-thumb measures

Explanation

Question 59 of 104

1

Dun & Bradstreet publishes

Select one of the following:

  • data on average ratios and relationships

  • credit ratings of companies

  • data on industry norms

  • all of these

Explanation

Question 60 of 104

1

One of the best places to look for early signs of change in a company's profitability is the

Select one of the following:

  • annual report sent to the SEC (10K)

  • year-end financial statement

  • interim financial statement

  • annual report sent to stockholders

Explanation

Question 61 of 104

1

Horizontal analysis of comparative financial statements include the

Select one of the following:

  • development of common-size statements

  • calculation of dollar amount changes and percentage changes from the previous to the current year

  • calculation of the percentage of net sales for each listed

  • calculation of liquidity ratios

Explanation

Question 62 of 104

1

A company with $50,000 in current assets, $25,000 in quick assets, and $30,000 in current liabilities makes a payment of a $1,500 current debt. As a result of this transaction, the current ratio and quick ratio will

Select one of the following:

  • both decrease

  • increase and decrease, respectively

  • both increase

  • remain the same and decrease, respectively

Explanation

Question 63 of 104

1

A high receivable turnover indicates that

Select one of the following:

  • many customers are defaulting on their debts

  • a large proportion of the company's sales is on credit

  • the company's inventory is moving very quickly

  • customers are making payments very quickly

Explanation

Question 64 of 104

1

The higher the debit to equity ratio, the great the financial risk the company is taking

Select one of the following:

  • True
  • False

Explanation

Question 65 of 104

1

* When a monthly mortgage payment is made and recorded, the debit to Mortgage Payable represents the reduction in the principal balance

Select one of the following:

  • True
  • False

Explanation

Question 66 of 104

1

A capital lease is the lease of property, plant or equipment that is in effect an installment purchase

Select one of the following:

  • True
  • False

Explanation

Question 67 of 104

1

Bondholders are creditors of the issuing corporation

Select one of the following:

  • True
  • False

Explanation

Question 68 of 104

1

Secured bonds are also known as debentures

Select one of the following:

  • True
  • False

Explanation

Question 69 of 104

1

An $80,000 bond issue priced at 97-3/4 is sold for $78,200.

Select one of the following:

  • True
  • False

Explanation

Question 70 of 104

1

The par value of a bond is equal to its face value

Select one of the following:

  • True
  • False

Explanation

Question 71 of 104

1

It is the bondholder rather than the issuer who may exercise the call feature of a callable bond.

Select one of the following:

  • True
  • False

Explanation

Question 72 of 104

1

The entry to record the issuance of bonds between interest payment dates will include a debit to Bond Interest Expense.

Select one of the following:

  • True
  • False

Explanation

Question 73 of 104

1

A company with income before income taxes of $94,000 and $20,000 in interest expense, has an interest coverage ratio of

Select one of the following:

  • 5.7 times

  • 4.7 times

  • 3.7 times

  • 6.7 times

Explanation

Question 74 of 104

1

If bonds are issued at a premium the face interest rate is

Select one of the following:

  • lower than the market rate of interest

  • higher than the market rate of interest

  • too low to attract investors

  • adjusted to higher effective rate of interest

Explanation

Question 75 of 104

1

Ten $1000 bonds issued at 99.75 on the interest date result in a debit to the Cash account for

Select one of the following:

  • $990.75

  • $9,907.50

  • $997.50

  • $9,975.00

Explanation

Question 76 of 104

1

A Corporation issued $100,000 of 20-year, 6% bonds at 98 on one of its semiannual interest dates. The straight-line method amortization is to be used. What is the total interest cost of the bonds?

Select one of the following:

  • $120,000

  • $122,000

  • $118,000

  • $117,500

Explanation

Question 77 of 104

1

*Short Answer!*
A corporation has a 7% $600,000 bond issue that originally was issued 5 years ago. There are now ten years remaining on the bond issue, and the market interest rate is 12%. Interest is paid semiannually. Calculate the current market value of the bond issue, using the present value tables.

Select one of the following:

  • Single Amount Table 3
    M arket
    F ace
    M arket

    Annuity/Semi annuity - Series Amount Table 4

  • Be sure to use tables!

Explanation

Question 78 of 104

1

The P/E (price/earnings) ratio is a measure of investors' confidence in a company's future.

Select one of the following:

  • True
  • False

Explanation

Question 79 of 104

1

Stockholders elect the board of directors which appoints the officers of a corporation.

Select one of the following:

  • True
  • False

Explanation

Question 80 of 104

1

The board of directors carries out the day-to-day operations of a corporation.

Select one of the following:

  • True
  • False

Explanation

Question 81 of 104

1

The board of directors carries out the day-to-day operations of a corporation.

Select one of the following:

  • True
  • False

Explanation

Question 82 of 104

1

The liability of a stockholder is usually limited to the stockholders' investment in the corporation.

Select one of the following:

  • True
  • False

Explanation

Question 83 of 104

1

The declaration of a cash dividend causes an increase in a corporation's liabilities at the date of record.

Select one of the following:

  • True
  • False

Explanation

Question 84 of 104

1

No entry is required on the date of record for a cash dividend.

Select one of the following:

  • True
  • False

Explanation

Question 85 of 104

1

Stock options are often granted by a corporation to management personnel as a means of additional compensation to and motivation of employees.

Select one of the following:

  • True
  • False

Explanation

Question 86 of 104

1

The stockholders' equity in a corporation consists of capital contributed by a stockholders and retained earnings.

Select one of the following:

  • True
  • False

Explanation

Question 87 of 104

1

Retained earnings consist of a pool of funds to be distributed to stockholders.

Select one of the following:

  • True
  • False

Explanation

Question 88 of 104

1

The cost of treasury stock is deducted from total Contributed Capital and Retained Earnings in determining total stockholders' equity.

Select one of the following:

  • True
  • False

Explanation

Question 89 of 104

1

Dividends yield equals

Select one of the following:

  • market price per share divided by dividends per share

  • net income divided by dividends per share

  • dividends per share divided by net income

  • dividends per share divided by market price per share

Explanation

Question 90 of 104

1

A disadvantage of the corporate form of business is

Select one of the following:

  • centralized authority and responsbility

  • its status as a separate legal entity

  • government regulation

  • continuous existence

Explanation

Question 91 of 104

1

Par value

Select one of the following:

  • is established for a share of stock after it is issued

  • is the legal capital established for a share of stock

  • represents what a share of stock is worth

  • represents the original selling price for a share of stock

Explanation

Question 92 of 104

1

The Board of Directors of B Corporation declared a cash dividend on January 18th, 2011, to be paid on February 18th, 2011, to shareholders holding the stock on February 2nd, 2011. Given these facts, the date February 2nd, 2011 is referred to as the

Select one of the following:

  • date of declaration

  • date of payment

  • ex-dividend date

  • date of record

Explanation

Question 93 of 104

1

All of the following are stockholders' equity accounts except

Select one of the following:

  • Treasury Stock

  • Preferred Stock

  • Retained Earnings

  • Dividends Payable

Explanation

Question 94 of 104

1

Any act that lies beyond the authority of a corporation to perform is an ultra vires act.

Select one of the following:

  • True
  • False

Explanation

Question 95 of 104

1

When stock is sold at par you...

Select one of the following:

  • Debit Cash / Credit Par Value

  • Debit Par Value / Credit Cash

Explanation

Question 96 of 104

1

A corporation set up perfectly is considered....

Select one of the following:

  • Dejeur

  • Defactor

Explanation

Question 97 of 104

1

A corporation set up with mistakes is....

Select one of the following:

  • Defacto

  • Dejeur

Explanation

Question 98 of 104

1

Name the accounts in the Income Statement

Select one of the following:

  • Do it!

  • XXOXOJOIJOSIJDOISJ

Explanation

Question 99 of 104

1

Contributed Capital includes all of these EXCEPT

Select one of the following:

  • Common & Preferred Stock

  • Retained Earnings

  • Paid in Capital in Excess

  • Treasury Stock

Explanation

Question 100 of 104

1

A fraudulent dividend declaration is considered an act of....

Select one of the following:

  • Piercing the Corporate Veil

  • Deferred Income Tax

  • Defacto

  • Ultra vire

Explanation

Question 101 of 104

1

No journal entry is required on

Select one of the following:

  • Date of Declaration

  • Date of Record

  • Date of Payment

  • Date of Issuance

Explanation

Question 102 of 104

1

A Bondholder is a Debter

Select one of the following:

  • True
  • False

Explanation

Question 103 of 104

1

Interest Formula =

Select one of the following:

  • Principal x Rate x Time

  • Income before Taxes + Interest Expense / Interest Expense

  • Current Assets / Current Liabilities

  • Dividends per share / Market $ per share

Explanation

Question 104 of 104

1

What measures how much a risk a company represents

Select one of the following:

  • Interest Cover Ratio

  • Debt to Equity Ratio

  • Dividends Yield Ratio

  • Return on Equity Ratio

Explanation

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