ACC – Week 3 Study Guide MCQs

A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows(indirect method), this event would be reflected as a(n) (Points : 5)addition adjustment to net income in thecash flows from operating activities outflow from investing inflow from investing inflow from financing activities.Question 2. 2. One of the primary benefits of the multiple-step income statement overthe single-step income statement is that the multiple-step income statement (Points : 5)shows gross margin and recognizes different types of costs and expenses.shows last year’s figures in comparison with the current year.discriminates between administrative and selling expenses.recognizes no distinction in types of costs or expenses.Question 3. 3. Which of the following publications does not qualify as a statement ofgenerally accepted accounting principles? (Points : 5)Statements of financial standards issued by the FASBAccounting interpretations issued by the FASBAPB OpinionsAccounting research studies issued by the AICPAQuestion 4. 4. For Nicholson Company, the following information is available:Capitalized leasesTrademarksLong-term receivables$200,00065,00075,000In Nicholson’s balance sheet, intangible assets should be reported at (Points : 5)$65,000.$75,000.$265,000.$275,000.Question 5. 5. On January 1, 2008, Dole Co. sold land that cost $210,000 for $280,000,receiving a note bearing interest at 10%. The note will be paid in three annualinstallments of $112,595 starting on December 31, 2008. Because collection of the noteis very uncertain, Dole will use the cost-recovery method. How much revenue from thissale should Dole recognize in 2008? (Points : 5)$0$21,000$28,000$70,000Question 6. 6. Joe Novak Corporation reports the following information:Correction of overstatement of depreciation expensein prior years, net of taxDividends declaredNet incomeRetained earnings, 1/1/08, as reported$ 215,000160,000500,0001,000,000Joe Novak should report retained earnings, 12/31/08, at (Points : 5)$785,000.$1,125,000.$1,340,000.$1,555,000.Question 7. 7. The purpose of Statements of Financial Accounting Concepts is to(Points : 5)establish GAAP.modify or extend the existing FASB Standards Statement.form a conceptual framework for solving existing and emerging problems.determine the need for FASB involvement in an emerging issue.Question 8. 8. Decision makers vary widely in the types of decisions they make, themethods of decision making they employ, the information they already possess or canobtain from other sources, and their ability to process information. Consequently, forinformation to be useful there must be a linkage between these users and the decisionsthey make. This link is (Points : 5)relevance.reliability.understandability.materiality.Question 9. 9. Maso Company recorded journal entries for the issuance of commonstock for $40,000, the payment of $13,000 on accounts payable, and the payment ofsalaries expense of $21,000. What net effect do these entries have on owners’equity? (Points : 5)Increase of $40,000Increase of $27,000Increase of $19,000Increase of $6,000Question 10. 10. Willingham Construction Company uses the percentage-of-completionmethod. During 2008, the company entered into a fixed-price contract to construct abuilding for Richman Company for $30,000,000. The following details pertain to thecontract:At December 31, 2008Percentage of completionEstimated total cost of contract$25,000,000Gross profit recognized to date3,000,000At December 31, 200925%$22,500,00060%1,875,000The amount of construction costs incurred during 2009 was (Points : 5)$15,000,000.$9,375,000.$5,625,000.$2,500,000.Question 11. 11. The accountant for Orion Sales Company is preparing the incomestatement for 2008 and the balance sheet at December 31, 2008. The January 1, 2008merchandise inventory balance will appear (Points : 5)only as an asset on the balance sheet.only in the cost of goods sold section of the income a deduction in the cost of goods sold section of the income statement and as a current asset on thebalance an addition in the cost of goods sold section of the income statement and as a current asset on thebalance sheet.Question 12. 12. How should the balances of progress billings and construction inprocess be shown at reporting dates prior to the completion of a long-term contract?(Points : 5)Progress billings as deferred income, construction in progress as a deferred expense.Progress billings as income, construction in process as inventory.Net, as a current asset if debit balance, and current liability if credit balance.Net, as income from construction if credit balance, and loss from construction if debit balance.Question 13. 13. Silas Company reported the following information for 2008:Sales revenueCost of goods soldOperating expenses$500,000350,00055,000Unrealized holding gain on available-for-sale securitiesCash dividends received on the securities20,0002,000For 2008, Silas would report comprehensive income of (Points : 5)$117,000.$115,000.$97,000.$20,000.Question 14. 14. On January 1, 2008, Mann Company borrows $2,000,000 fromNational Bank at 11% annual interest. In addition, Mann is required to keep acompensatory balance of $200,000 on deposit at National Bank which will earn interestat 5%. The effective interest that Mann pays on its $2,000,000 loan is (Points : 5)10.0%.11.0%.11.5%.11.6%.Question 15. 15. Mune Company recorded journal entries for the payment of $50,000 ofdividends, the $32,000 increase in accounts receivable for services rendered, and thepurchase of equipment for $21,000. What net effect do these entries have on owners’equity? (Points : 5)Decrease of $71,000Decrease of $39,000Decrease of $18,000Increase of $11,000Question 16. 16. The role of the Securities and Exchange Commission in theformulation of accounting principles can be best described as (Points : 5)consistently primary.consistently secondary.sometimes primary and sometimes secondary.non-existent.Question 17. 17. The most authoritative category of generally accepted accountingprinciples includes all of the following except (Points : 5)Accounting Research Bulletins.APB Opinions.FASB Standards.FASB Technical Bulletins.Question 18. 18. Baker Company has been using the LIFO method of inventoryvaluation for 10 years, since it began operations. Its 2008 ending inventory was$40,000, but it would have been $60,000 if FIFO had been used. Thus, if FIFO hadbeen used, Baker’s income before income taxes would have been (Points : 5)$20,000 greater over the 10-year period.$20,000 less over the 10-year period.$20,000 greater in 2008.$20,000 less in 2008.Question 19. 19. The following account balances (normal balances) were taken fromthe journal entry used to transfer various merchandise accounts under a periodicinventory system into the Cost of Goods Sold account:Cost of Goods SoldInventory (beginning)Transportation-InPurchase DiscountsPurchasesPurchase Allowances$235,00062,5006,7004,500214,0005,700Based on the above facts, what was ending inventory? (Points : 5)$21,000$45,600$38,000$37,900Question 20. 20. The objectives of financial reporting include all of the following exceptto provide information that (Points : 5)is useful to the Internal Revenue Service in allocating the tax burden to the business useful to those making investment and credit helpful in assessing future cash flows.identifies the economic resources (assets), the claims to those resources (liabilities), and the changes inthose resources and claims.

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