ACC 253- FINAL EXAM Financial Accounting Principles: Income Statement and Revenue Recognition

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ACC 253-FINAL EXAM Financial Accounting Principles: Income Statementand Revenue RecognitionACC253----FINAL EXAM10)Limitations of the income statement include all of the following exceptA.items that cannot bemeasured reliably are not reported.B.only actual amounts are reported in determining net income.C.income measurement involves judgment.D.income numbers are affected by the accounting methods employed.11)Which of thefollowing would represent the least likely use of an income statementprepared for a business enterprise?A.Use by customers to determine a company's ability to provide needed goods and services.B.Use by labor unions to examine earningsclosely as a basis for salary discussions.C.Use by government agencies to formulate tax and economic policy.D.Use by investors interested in the financial position of the entity.12)Which of the following is not a generallypracticed method of presenting the incomestatement?A.Including prior period adjustments in determining net incomeB.The single-step income statementC.The consolidated statement of incomeD.Including gains and losses fromdiscontinued operations of a component of a business indetermining net income13)Which of the following is not a reason why revenue is recognized at time of sale?A.Title legally passes from seller to buyer.B.Realization hasoccurred.C.All of these are reasons to recognize revenue at time of sale.D.The sale is the critical event.

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14)In selecting an accounting method for a newly contracted long-term constructionproject, the principal factor to beconsidered should beA.the method commonly used by the contractor to account for other long-term construc-tioncontracts.B.the terms of payment in the contract.C.the inherent nature of the contractor's technical facilities used inconstruction.D.the degree to which a reliable estimate of the costs to complete and extent of progresstoward completion is practicable.15)Which of the following is not an accurate representation concerning revenuerecognition?A.Revenue from permitting others to use enterprise assets is recognized as time passes or asthe assets are used.B.Revenue from selling products is recognized at the date of sale, usually interpreted tomean the date of delivery to customers.C.Revenue from disposing of assets other than products is recognized at the date of sale.D.Revenue from services rendered is recognized when cash is received or when serviceshave been performed.16)The balance sheet contributes tofinancial reporting by providing a basis for all of thefollowing exceptA.determining the increase in cash due to operations.B.computing rates of return.C.assessing the liquidity and financial flexibility of the enterprise.D.evaluating the capital structure of the enterprise.17)The amount of time that is expected to elapse until an asset is realized or otherwise convertedinto cash is referred to asA.liquidity.B.solvency.C.exchangeability.D.financial flexibility.18)One criticism not normally aimed at a balance sheet prepared using current accounting andreporting standards is

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A.an extensive use of estimates.B.failure to reflect current valueinformation.C.failure to include items of financial value that cannot be recorded objectively.D.the extensive use of separate classifications.19)Which of the following should be disclosed in a Summary of Significant AccountingPolicies?A.Claims of equity holdersB.Types of executory contractsC.Depreciation method followedD.Amount for cumulative effect of change in accounting principle20)The focus of APB Opinion No. 22 is on the disclosure ofaccounting policies. Thisinformation is important to financial statement readers in determiningA.the value of obsolete items included in ending inventory.B.net income for the year.C.whether the working capital position isadequate for future operations.D.whether accounting policies are consistently applied from year to year.21)Events that occur after the December 31, 2008 balance sheet date (but before the balancesheet is issued) and provideadditional evidence about conditions that existed at the balance sheetdate and affect the realizability of accounts receivable should beA.used to record an adjustment to Bad Debt Expense for the year ending December 31,2008.B.discussed only in the MD&A (Management's Discussion and Analysis) section of theannual report.C.used to record an adjustment directly to the Retained Earnings accountD.disclosed only in the Notes to the Financial Statements.22)If thefinancial statements examined by an auditor lead the auditor to issue an opinion thatcontains an exception that is not of sufficient magnitude to invalidate the statement as a whole,the opinion is said to beA.adverse.B.unqualified.C.exceptional.D.qualified.

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23)The MD&A section of an enterprise's annual report is to cover the following three items:A.liquidity, capital resources, and results of operations.B.income statement, balancesheet, and statement of owners' equity.C.changes in the stock price, mergers, and acquisitions.D.income statement, balance sheet, and statement of cash flows.24)The required approach for handling extraordinary items in interimreports is toA.charge or credit the loss or gain in the quarter that it occurs.B.prorate them over all four quarters.C.disclose them only in the notes.D.prorate them over the current and remaining quarters.25)The payoutratio is calculated by dividingA.cash dividends by market price per share.B.dividends per share by earnings per share.C.cash dividends by net income less preferred dividends.D.cash dividends by net income plus preferreddividends.26)Which of the following ratios measures long-term solvency?A.Debt to total assetsB.Acid-test ratioC.Current ratioD.Receivables turnover27)The calculation of the number of times interest is earnedinvolves dividingA.net income plus income taxes and interest expense by annual interest expense.B.net income by annual interest expense.C.none of these.D.net income plus income taxes by annual interest expense.28)Anincrease in inventory balance would be reported in a statement of cash flows using theindirect method (reconciliation method) as a(n)

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A.cash outflow from investing activities.B.addition to net income in arriving at net cash flow fromoperating activities.C.cash outflow from financing activities.D.deduction from net income in arriving at net cash flow from operating activities.29)Of the following questions, which one would not be answered by the statement of cashflows?A.Where did the cash come from during the period?B.What was the change in the cash balance during the period?C.What was the cash used for during the period?D.Were all the cash expenditures of benefit to the companyduring the period?30)To arrive at net cash provided by operating activities, it is necessary to report revenues andexpenses on a cash basis. This is done byA.re-recording all income statement transactions that directly affect cash in aseparate cashflow journal.B.eliminating all transactions that have no current or future effect on cash, such asdepreciation, from the net income computation.C.estimating the percentage of income statement transactions that wereoriginally reportedon a cash basis and projecting this amount to the entire array of income statementtransactions.D.eliminating the effects of income statement transactions that did not result in acorresponding increase or decrease in cash.31)In determining net cash flow from operating activities, a decrease in accounts payable duringa periodA.means that income on an accrual basis is less than income on a cash basis.B.requires a decrease adjustment to cost of goods soldunder the direct method.C.requires an addition adjustment to net income under the indirect method.D.requires an increase adjustment to cost of goods sold under the direct method.32)In a statement of cash flows, the cash flows frominvesting activities section should reportA.the issuance of common stock in exchange for a factory building.B.the assignment of accounts receivable.C.stock dividends received.D.a major repair to machinery charged toaccumulated depreciation.

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33)Riley Company reports its income from investments under the equity method and recognizedincome of $25,000 from its investment in Wood Co. during the current year, even though nodividends were declared or paid byWood during the year. On Riley's statement of cash flows(indirect method), the $25,000 shouldA.not be shown.B.be shown as a deduction from net income in the cash flows from operating activitiessection.C.be shown as cash inflow frominvesting activities.D.be shown as cash outflow from financing activities.34)Which of the following tables would show the smallest factor for an interest rate of 10%for six periods?A.Future value of an ordinary annuity of 1B.Present value of an annuity due of 1C.Present value of an ordinary annuity of 1D.Future value of an annuity due of 135)Which table has a factor of 1.00000 for 1 period at every interest rate?A.Future value of 1B.Present value of an ordinary annuity of 1C.Present value of 1D.Future value of an ordinary annuity of 136)Which of the following tables would show the smallest value for an interest rate of 5%for six periods?A.Future value of 1B.Present value of an ordinary annuity of 1C.Present value of 1D.Future value of an ordinary annuity of 1ACC 253----FINAL EXAM….36 QUESTIONS ANSWERED

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1) An accrued expense can best be described as an amountA. paid and currently matched with earnings.B.not paid and not currently matched with earnings.C.not paid and currently matched with earnings.D. paid and not currently matched withearnings.2) When an item of revenue is collected and recorded in advance, it is normally called a(n)___________ revenue.A. unearnedB.prepaidC.accruedD. cash3) When an item of expense is paid and recorded in advance, it is normally called a(n)A. estimated expense.B.accrued expense.C.prepaid expense.D. cash expense.4) A common set of accounting standards and procedures are calledA. objectives of financial reporting.B.generally accepted accounting principles.C.financial accounting standards.D. statements of financial accounting concepts.5) One objective of financial reporting is to provideA. information that is useful in assessing cash flow prospects.B.information about the liquidation values of the resources held by the enterprise.C.information about the investors in the business entity.D. information that will attract new investors.6) The information provided by financial reporting pertains toA.individual business enterprises, industries, and an economy as a whole, rather than tomembers of society asconsumers.B.business industries, rather than to individual enterprises or an economy as a whole or tomembers of society as consumers.C.individual business enterprises, rather than to industries or an economy as a whole or to

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members of society as consumers.D.an economy as a whole and to members of society as consumers, rather than to individualenterprises or industries.7) The Financial Accounting FoundationA. provides information to interested parties on financial reportingissues.B.oversees the operations of the AICPA.C.oversees the operations of the FASB.D.works with the Financial Accounting Standards Advisory Council to provide informa-tiontointerested parties on financial reporting issues.8) The major distinction between the Financial Accounting Standards Board (FASB) and itspredecessor, the Accounting Principles Board (APB), isA. all members of the FASB possess extensive experience in financial reporting.B.all members of the FASB are fully remunerated, serve full time, and are independent ofany companies or institutions.C.the FASB issues exposure drafts of proposed standards.D. a majority of the members of the FASB are CPAs drawn from public practice.9) The body that has the power to prescribe the accounting practices and standards to beemployed by companies that fall under its jurisdiction is theA. FASB.B.SEC.C.APB.D. AICPA.10) Limitations of the income statement include all of the following exceptA. items that cannot be measured reliably are not reported.B.income measurement involves judgment.C.income numbers are affected by the accounting methods employed.D. only actual amounts are reported in determining net income.11) The income statement revealsA. resources and equities of a firm at a point in time.B.net earnings (net income) of a firm at a point in time.C.net earnings (net income) of afirm for a period of time.D. resources and equities of a firm for a period of time.

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12) Which of the following would represent the least likely use of an income statement preparedfor a business enterprise?A. Use by customers to determine a company's ability to provide needed goods and services.B.Use by government agencies toformulate tax and economic policy.C.Use by investors interested in the financial position of the entity.D. Use by labor unions to examine earnings closely as a basis for salary discussions.13) The process of formally recording or incorporating an item in the financial statements of anentity isA. allocation.B.realization.C.recognition.D. articulation.14) Which of the following is not a reason why revenue is recognized at time of sale?A. Realization has occurred.B.Title legally passes from seller to buyer.C.All of these are reasons to recognize revenue at time of sale.D. The sale is thecritical event.15) Which of the following is not an accurate representation concerning revenue recognition?A.Revenue from selling products is recognized at the date of sale, usually interpreted to mean thedate of delivery to customers.B.Revenue from permitting others to use enterprise assets is recognized as time passes or as theassets are used.C.Revenue from disposing of assets other than products is recognized at the date of sale.D.Revenue from services rendered is recognized when cash is received or when serviceshave been performed.16) One criticism not normally aimed at a balance sheet prepared using current accounting andreporting standards isA. an extensive use of estimates.B.the extensive use of separateclassifications.C.failure to reflect current value information.D. failure to include items of financial value that cannot be recorded objectively.17) The basis for classifying assets as current or noncurrent is conversion to cash withinA. the accounting cycle or one year, whichever is longer.B.the operating cycle or one year, whichever is longer.

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