Practice Questions forIntermediate Accounting 1Lindquist

1. Accrual accounting is used becausea. cash flows are considered less important.b. it provides a better indication of ability to generate cash flows than the

cash basis.c. it recognizes revenues when cash is received and expenses when cash is

paid.d. none of the above.

2. Accounting principles are "generally accepted" only whena. an authoritative accounting rule-making body has established it in an official

pro-nouncement.b. it has been accepted as appropriate because of its universal application.c. both a and b.d. neither a nor b.

3. Companies that are listed on a stock exchange are required to submit their financial statements to thea. AICPA.b. APBc. FASB.d. SEC.

4. The Financial Accounting Standards Boarda. has issued a series of pronouncements entitled Statements on Auditing

Standards.b. was the forerunner of the current Accounting Principles Board.c. is the arm of the Securities and Exchange Commission responsible for setting

financial accounting standards.d. is appointed by the Financial Accounting Foundation.

5. The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), isa. the FASB issues exposure drafts of proposed standards.b. all members of the FASB are fully remunerated, serve full time, and are

independent of any companies or institutions.c. all members of the FASB possess extensive experience in financial reporting.d. a majority of the members of the FASB are CPAs drawn from public practice.

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6. Which of the following is not a publication of the FASB?a. Statements of Financial Accounting Conceptsb. Accounting Research Bulletinsc. Interpretationsd. Technical Bulletins

7. The Governmental Accounting Standards Board's main purpose is to develop standards fora. the General Accounting Office.b. the Federal government.c. state and local government.d. the Internal Revenue Service.

8. An organization that has not published accounting standards is thea. American Institute of Certified Public Accountants.b. Securities and Exchange Commission.c. Financial Accounting Standards Board.d. All of these have published accounting standards.

9. Generally Accepted Accounting Principles include: 1) FASB Technical Bulletins, 2) APB Opinions, and 3) Widely-accepted industry practices. These three items rank from most authoritative to least authoritative as follows:a. 1, 2, 3.b. 1, 3, 2.c. 2, 1, 3.d. 2, 3, 1.

10. The purpose of the International Accounting Standards Board is toa. issue enforceable standards which regulate the financial accounting and

reporting of multinational corporations.b. develop a uniform currency in which the financial transactions of companies

through-out the world would be measured.c. promote uniform accounting standards among countries of the world.d. arbitrate accounting disputes between auditors and international companies.

11. Which of the following (a-c) are not true concerning a conceptual framework in accounting?a. It should be a basis for standard-setting.b. It should allow practical problems to be solved more quickly by reference to it.c. It should be based on fundamental truths that are derived from the laws

of nature.d. All of the above (a-c) are true.

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12. The underlying theme of the conceptual framework isa. decision usefulness.b. understandability.c. reliability.d. comparability.

13. Decision makers vary widely in the types of decisions they make, the methods of decision making they employ, the information they already possess or can obtain from other sources, and their ability to process information. Consequently, for information to be useful there must be a linkage between these users and the decisions they make. This link isa. relevance.b. reliability.c. understandability.d. materiality.

14. The two primary qualities that make accounting information useful for decision making area. comparability and consistency.b. materiality and timeliness.c. relevance and reliability.d. reliability and comparability.

15. The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation isa. relevance.b. reliability.c. verifiability.d. neutrality.

16. According to Statement of Financial Accounting Concepts No. 2, timeliness is an ingredient of the primary quality of

Relevance Reliabilitya. Yes Yesb. No Yesc. Yes Nod. No No

17. In classifying the elements of financial statements, the primary distinction between revenues and gains isa. the materiality of the amounts involved.b. the likelihood that the transactions involved will recur in the future.c. the nature of the activities that gave rise to the transactions involved.d. the costs versus the benefits of the alternative methods of disclosing the

transactions involved.

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18. Which of the following is false with regard to the element "comprehensive income"?a. It is more inclusive than the traditional notion of net income.b. It includes net income and all other changes in equity exclusive of owners'

invest-ments and distributions to owners.c. This concept is not yet being applied in practice.d. It excludes prior period adjustments (transactions that relate to

previous periods, such as corrections of errors).

19. Which of the following is an implication of the going concern assumption?a. The historical cost principle is credible.b. Depreciation and amortization policies are justifiable and appropriate.c. The current-noncurrent classification of assets and liabilities is justifiable and

signify-cant.d. All of these.

20. Stockholders’ equity is not affected by alla. cash receipts.b. dividends.c. revenues.d. expenses.

21. Which of the following is a real (permanent) account?a. Goodwillb. Salesc. Accounts Receivabled. Both Goodwill and Accounts Receivable

22. Adjustments are often prepareda. after the balance sheet date, but dated as of the balance sheet date.b. after the balance sheet date, and dated after the balance sheet date.c. before the balance sheet date, but dated as of the balance sheet date.d. before the balance sheet date, and dated after the balance sheet date.

23. How do these prepaid expenses expire? Rent Supplies

a. With the passage of time Through use and consumptionb. With the passage of time With the passage of timec. Through use and consumption Through use and consumptiond. Through use and consumption With the passage of time

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24. Unearned revenue on the books of one company is likely to bea. a prepaid expense on the books of the company that made the advance payment.b. an unearned revenue on the books of the company that made the advance

payment.c. an accrued expense on the books of the company that made the advance payment.d. an accrued revenue on the books of the company that made the advance payment.

25. Adjusting entries are necessary to1. obtain a proper matching of revenue and expense.2. achieve an accurate statement of assets and equities.3. adjust assets and liabilities to their fair market value.

a. 1b. 2c. 3d. 1 and 2

26. Under the cash basis of accounting, revenues are recordeda. when they are earned and realized.b. when they are earned and realizable.c. when they are earned.d. when they are realized.

27. Mune Company recorded journal entries for the payment of $50,000 of dividends, the $32,000 increase in accounts receivable for services rendered, and the purchase of equipment for $21,000. What net effect do these entries have on owners’ equity?a. Decrease of $71,000.b. Decrease of $39,000.c. Decrease of $18,000.d. Increase of $11,000.

28. Pappy Corporation received cash of $13,500 on September 1, 2007 for one year’s rent in advance and recorded the transaction with a credit to Unearned Rent. The December 31, 2007 adjusting entry isa. debit Rent Revenue and credit Unearned Rent, $4,500.b. debit Rent Revenue and credit Unearned Rent, $9,000.c. debit Unearned Rent and credit Rent Revenue, $4,500.d. debit Cash and credit Unearned Rent, $9,000.

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29. Lopez Company received $6,400 on April 1, 2007 for one year's rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2007 adjusting entry isa. debit Rent Revenue and credit Unearned Rent, $1,600.b. debit Rent Revenue and credit Unearned Rent, $4,800.c. debit Unearned Rent and credit Rent Revenue, $1,600.d. debit Unearned Rent and credit Rent Revenue, $4,800.

30. Brown Company's account balances at December 31, 2007 for Accounts Receivable and the related Allowance for Doubtful Accounts are $460,000 debit and $700 credit, respectively. From an aging of accounts receivable, it is estimated that $12,500 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account fora. $12,500.b. $13,200.c. $11,800.d. $700.

Use the following information for questions 31 and 32:A company receives interest on a $30,000, 8%, 5-year note receivable each

April 1. At December 31, 2006, the following adjusting entry was made to accrue interest receivable:

Interest Receivable ................................................................ 1,800Interest Revenue ........................................................ 1,800

31. Assuming that the company does not use reversing entries, what entry should be made on April 1, 2007 when the annual interest payment is received?a. Cash ....................................................................................... 600

Interest Revenue ........................................................ 600b. Cash ....................................................................................... 1,800

Interest Receivable .................................................... 1,800c. Cash ...................................................................................... 2,400

Interest Receivable .................................................. 1,800Interest Revenue ...................................................... 600

d. Cash ....................................................................................... 2,400Interest Revenue ........................................................ 2,400

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*32. Assuming that the company does use reversing entries, what entry should be made on April 1, 2007 when the annual interest payment is received?a. Cash ....................................................................................... 600

Interest Revenue ........................................................ 600b. Cash ....................................................................................... 1,800

Interest Receivable .................................................... 1,800c. Cash ..................................................................................... 2,400

Interest Receivable .................................................... 1,800Interest Revenue ........................................................ 600

d. Cash ...................................................................................... 2,400 Interest Revenue....................................................... 2,400

33. The following information is available for Carr Company:Payment for goods during 2007 $92,000Accounts payable, January 1, 2007 9,000Inventory, January 1, 2007 10,400Accounts payable, December 31, 2007 7,200Inventory, December 31, 2007 9,700

Cost of goods sold for 2007 isa. $89,500.b. $90,900.c. $97,100.d. $98,500.

34. The single-step income statement emphasizesa. the gross profit figure.b. total revenues and total expenses.c. extraordinary items and accounting changes more than these are emphasized

in the multiple-step income statement.d. the various components of income from continuing operations.

35. The occurrence which most likely would have no effect on 2007 net income (assuming that all amounts involved are material) is thea. sale in 2007 of an office building contributed by a stockholder in 1983.b. collection in 2007 of a receivable from a customer whose account was

written off in 2006 by a charge to the allowance account.c. settlement based on litigation in 2007 of previously unrecognized damages

from a serious accident which occurred in 2005.d. worthlessness determined in 2007 of stock purchased on a speculative basis

in 2003.

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36. The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007. The January 1, 2007 merchandise inventory balance will appeara. only as an asset on the balance sheet.b. only in the cost of goods sold section of the income statement.c. as a deduction in the cost of goods sold section of the income statement and

as a current asset on the balance sheet.d. as an addition in the cost of goods sold section of the income statement and

as a current asset on the balance sheet.

37. When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported asa. a prior period adjustment.b. an extraordinary item.c. an amount after continuing operations and before extraordinary items.d. a bulk sale of plant assets included in income from continuing operations.

38. A correction of an error in prior periods' income will be reported

In the income statement Net of taxa. Yes Yesb. No Noc. Yes Nod. No Yes

39. For Garret Wolfe Company, the following information is available:

Cost of goods sold $ 60,000Dividend revenue 2,500Income tax expense 6,000Operating expenses 23,000Sales 100,000

In Garret Wolfe’s multiple-step income statement, gross profita. should not be reported b. should be reported at $13,500.c. should be reported at $40,000.d. should be reported at $42,500.

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40. If plant assets of a manufacturing company are sold at a gain of $820,000 less related taxes of $250,000, and the gain is not considered unusual or infrequent, the income statement for the period would disclose these effects asa. a gain of $820,000 and an increase in income tax expense of $250,000.b. operating income net of applicable taxes, $570,000.c. a prior period adjustment net of applicable taxes, $570,000.d. an extraordinary item net of applicable taxes, $570,000.

41. Penn Company reported the following information for 2007:

Sales revenue $510,000Cost of goods sold 350,000Operating expenses 55,000Unrealized holding gain on available-for-sale securities 40,000Cash dividends received on the securities 2,000

For 2007, Penn would report other comprehensive income ofa. $137,000.b. $135,000.c. $42,000.d. $40,000.

42. Dan Nicholson Corporation has an extraordinary loss of $50,000, an unusual gain of $35,000, and a tax rate of 40%. At what amount should Dan Nicholson report each item?

Extraordinary loss Unusual gaina. $(50,000) $35,000b. (50,000) 21,000c. (30,000) 35,000d. (30,000) 21,000

43. Sam Hurd Company has the following items: common stock, $720,000; treasury stock, $85,000; deferred taxes, $100,000 and retained earnings, $313,000. What total amount should Sam Hurd Company report as stockholders’ equity?a. $848,000.b. $948,000.c. $1,048,000.d. $1,118,000.

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44. Reese Corp.'s trial balance reflected the following account balances at December 31, 2007:

Accounts receivable (net) $24,000Trading securities 6,000Accumulated depreciation on equipment and furniture 15,000Cash 11,000Inventory 30,000Equipment 25,000Patent 4,000Prepaid expenses 2,000Land held for future business site 18,000

In Reese's December 31, 2007 balance sheet, the current assets total isa. $90,000.b. $82,000.c. $77,000.d. $73,000.

Use the following information for questions 82 through 84.

The following trial balance of Scott Corp. at December 31, 2007 has been properly adjusted except for the income tax expense adjustment.

Scott Corp.Trial Balance

December 31, 2007 Dr.

Cr. Cash $ 775,000Accounts receivable (net) 2,695,000Inventory 2,085,000Property, plant, and equipment (net) 7,366,000Accounts payable and accrued liabilities $ 1,701,000Income taxes payable 654,000Deferred income tax liability 85,000Common stock 2,350,000Additional paid-in capital 3,680,000Retained earnings, 1/1/04 3,450,000Net sales and other revenues

13,360,000Costs and expenses 11,180,000Income tax expenses 1,179,000

$25,280,000$25,280,000

Other financial data for the year ended December 31, 2007:

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Included in accounts receivable is $1,200,000 due from a customer and payable in quarterly installments of $150,000. The last payment is due December 29, 2009.

The balance in the Deferred Income Tax Liability account pertains to a temporary difference that arose in a prior year, of which $20,000 is classified as a current liability.

During the year, estimated tax payments of $525,000 were charged to income tax expense. The current and future tax rate on all types of income is 30%.

In Scott's December 31, 2007 balance sheet,

45. The current assets total isa. $6,080,000.b. $5,555,000.c. $5,405,000.d. $4,955,000.

46. The current liabilities total isa. $1,850,000.b. $1,915,000.c. $2,375,000.d. $2,440,000.

47. The final retained earnings balance isa. $4,451,000.b. $4,536,000.c. $4,976,000.d. $4,905,000.

48. Working capital isa. capital which has been reinvested in the business.b. unappropriated retained earnings.c. cash and receivables less current liabilities.d. none of these.

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