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ACG 3100 Fundamentals of Financial Accounting: Concepts and Principles

Exploring core financial accounting principles and concepts.

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    ACG 3100 Fundamentals o f Financial Accounting: Concepts and Principles ACG 3100 SOLUTION TO MULTIPLE QUESTION PROBLEM 1. Which of the following is NOT normally an objective of financial reporting? a. To provide information about an entity's assets and claims against those assets b. To provide information that is useful in assessing an entity's sources and uses of cash c. To provide information that is useful in lending and investing decisions d. To provide information about an entity's liquidation value 2. As independent (or external) auditors, CPAs are primarily responsible for a. preparing financial statements in conformity with GAAP. b. certifying the accuracy of financial statements. c. expressing an opinion a s to the fairness of financial statements. d. filing financial statements with the SEC. 3. The assumed continuation of a business entity in the absence of evidence to the contrary is an example of the accounting concept of a. accrual. b. consistency. c. comparability. d. going concern. 4. According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is a. realization. b. recognition. c. matching. d. allocation. 5. Generally accepted accounting principles a. are accounting adaptations based on the laws of economic science. b. derive their credibility and authority from legal rulings and court precedents. c. derive their credibility and authority from the federal government through the financial reporting section of the SEC. d. derive their credibility and authority from general recognition and acceptance by the accounting profession. 6. On June 30, a company paid $3,600 for insurance premiums for the cu rrent year and debited the amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount expired. The omission has the following effect on the financial statements prepared December 31: a. overstates owners' equity. b. overstates assets. c. understates net income. d. overstates both owners’ equity and assets. 7. Which of the following criteria must be met before an event should be recorded for

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    accounting purposes? a. The event must be an arm's - length transaction. b. The event must be repeatable in a future period. c. The event must be measurable in financial terms. d. The event must be disclosed in the reported footnotes. 8. Adjusting entries normally involve a. real accounts only. b. nominal accounts only. c. real and nominal accounts. d. liability accounts only. 9. If an inventory account is understated at year end, the effect will be to overstate the a. net pur chases. b. gross margin. c. cost of goods available for sale. d. cost of goods sold. 10. Beginning and ending Accounts Receivable balances were $28,000 and $24,000, respectively. If collections from clients during the period were $80,000, then total services rendered on account were apparently a. $76,000. b. $84,000. c. $104,000. d. $108,000. 11. The following balances have been excerpted from Edwards' balance sheets: December 31, 2013 December 31, 2012 Prepaid Insurance ..... ....... $ 6,000 $ 7,500 Interest Receivable .......... 3,700 14,500 Salaries Payable ............. 61,500 53,000 Edwards Company paid or collected during 2013 the following items: Insurance premiums paid ...... $ 41,500 Interest collected ........... 123,500 Salaries paid ................ 481,000 The interest revenue on the income statement for 2013 was a. $90,500. b. $112,700. c. $117,500. d. $156,500. 12. Comet Corporation's liability account balances at Ju ne 30, 2013, included a 10 percent note payable. The note is dated October 1, 2011, and carried an original principal amount of $600,000. The note is payable in three equal annual payments of $200,000 plus interest. The first interest and principal payment was made on October 1, 2012. In Comet's June 30, 2013, balance sheet, what amount should be reported as Interest Payable for this note? a. $10,000 b. $15,000 c. $30,000

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    d. $45,000 13. The correct order to present current assets is a. cash, inventories, prepaid items, accounts receivable. b. cash, inventories, accounts receivable, prepaid items. c. cash, accounts receivable, prepaid items, inventories. d. cash, accounts receivable, inventories, prepaid items. 14. Unearned rent would normally appear on the balance sheet as a a. plant asset. b. current liability. c. long - term liability. d. current asset. 15. Which of the following is NOT a long - term investment? a. Stock held to exert influence on another company b. Land held for speculation c. Trademarks d. Cash surrender value of life insurance 16. The operating cycle a. measures the time elapsed between cash disbursement for inventory and cash collection of the sales price. b. refers to the seasonal variations experienced by business enterprises. c. should be used to classify assets and liabilities as current if it is less than one year. d. cannot exceed one year. 17. Wolfe Co. was incorporated on July 1, 2014, with $200,000 from the issuance of stock and borrowed funds of $30,000. During the first year of operations, net income was $10,000. On December 15, Wolfe paid an $800 cash dividend. No additional activities affected owners' equity in 2014. At December 31, 2014, Wolfe's liabilities had increased to $37,600. In Wolfe's December 31, 2014, balance sheet, total assets should be reported at a. $239,200. b. $240,000. c. $246,800. d. $276,800. 18. Volta Electronics Inc. reported the following items on its December 31, 2014, trial balance: Accounts Payable ........................................ $108,900 Advances to Employees ................................... 4,500 Unearned Rent Revenue ................................... 28,800 Estimated Liability Under Warranties .................... 25,800 Cash Surrender Value of Officers' Life Insurance ........ 7,500 Bonds Payable ........................................... 555,000 Discount o n Bonds Payable ............................... 22,500 Trademarks .............................................. 3,900 The amount that should be recorded on Volta’s balance sheet as total liabilities is a. $696,000. b. $700,500.

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