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Accounting Study Questions

1. Management should select the depreciation method that is easiest to apply OR best measures the plant asset's market vale over its useful life OR best measures the plant asset's contribution to revenue over its useful life OR has been used most often in the past by the company?

2. Corporations invest in other companies for all of the following reasons except to
a. house excess cash until needed
b. generate earnings
c. meet strategic goals
d. increase trading of the other companies' stock

3. A typical investment to house excess cash until needed is
stocks of companies in a related industry
a. debt securities
b. low-risk, highly liquid securities
c. stock securities

4. A company may purchase a noncontrolling interest in another firm in a related industry
a. to house excess cash until needed
b. to generate earnings
c. for strategic reasons
d. for speculative reasons

5. Under the equity method of accounting for long-term investments in common stock, when a dividend is received form the investee company,
a. the Dividend Revenue account is credited
b. the Stock Investments account is increased
c. the Stock Investments account is decreased
d. no entry is necessary

6. Which of the following would not be classified as a temporary investment? Short-term commercial paper or Idle cash in a bank checking account or Marketable equity securities or Marketable debt securities

7. What is the primary purpose of the statement of cash flows is to
a. provide information about the investing and financing activities during a period
b. prove that revenues exceed expenses if there is a net income
c. provide information about the cash receipts and cash payments during a period
d. facilitate banking relationships

8. If a company reports a net loss, it
a. may still have a net increase in cash
b. will not be able to pay cash dividends
c. will not be able to get a loan
d. will not be able to make capital expenditures

9. The category that is generally considered to be the best measure of a company's ability to continue as a going concern is
a. cash flows from operation activities
b. cash flows from investing activities
c. cash flows from financing activities
d. usually different form year to year

10. Cash receipts from interest and dividends are classified as financing activities or investing activities or operation activities OR either financing or investing activities

11. Which of the following transactions does not affect cash during a period?
a. Write-off of an uncollectible account
b. Collection of an accounts receivable
c. Sale of treasury stock
d. Exercise of the call option on bonds payable

12. If accounts receivable have increased during the period,
a. revenues on an accrual basis are less than revenues on a cash basis
b. revenues on an accrual basis are greater than revenues on a cash basis
c. revenues on an accrual basis are the same as revenues on a cash basis
d. expenses on an accrual basis are greater than expenses on a cash basis

13. If accounts payable have increased during a period,
a. revenues on an accrual basis are less than revenues on a cash basis
b. expenses on an accrual basis are less than expenses on a cash basis
c. expenses on an accrual basis are greater than expenses on a cash basis
d. expenses on an accrual basis are the same as expenses on a cash basis

14. Using the indirect method, patent amortization expense for the period
a. is deducted form net income
b. causes cash to increase
c. causes cash to decrease
d. is added to net income

15. Using the indirect method, if equipment is sold at a gain, the
a. sale proceeds received are deducted in the operating activities section
b. sale proceeds received are added in the operation activities section
c. amount of the gain is added in the operation activities section
d. amount of the gain is deducted in the operation activities section

16. Lorette Company had credit sales of $700,000. The beginning accounts receivable valance was $40,000 and the ending accounts receivable balance was $140,000. What were3 the cash collections from customers during the period?
a. $800,000
b. $700,000
c. $600,000
d. $740,000

17. Short-term creditors are usually most interested in evaluating
a. solvency
b. liquidity
c. marketability
d. profitability

18. Long-term creditors are usually most interested in evaluating liquidity and solvency OR solvency and marketability OR liquidity and profitability OR profitability and solvency

19. Stockholders are most interested in evaluating liquidity and solvency OR profitability and solvency OR liquidity and profitability OR marketability and solvency

20. Ratios are used as tools in financial analysis
a. instead of horizontal and vertical analyses
b. because they may provide information tat is not apparent from inspection of the individual components of the ratio
c. because even single ratios by themselves are quite meaningful
d. because they are prescribed by GAAP

Cory and Alvin Company had $375,000 of current assets and $135,000 of current liabilities before borrowing $90,000 from the bank with a 3-month note payable.

21. What effect did the borrowing transaction have on the amount of Cory and Alvin Company's working capital?
a. No effect
b. $90,000 increase
c. $135,000 increase
d. $90,000 decrease

22. What effect did the borrowing transaction have on Cory and Alvin Company's current ratio?
a. The ratio remained unchanged
b. The change in the current ratio cannot be determined
c. The ratio decreased
d. The ratio increased

23. If equal amounts are added to the numerator and the denominator of the current ratio, the ratio will always increase OR decrease OR stay the same OR equal zero

24. A general rule to use in assessing the average collection period is
a. that it should not exceed 30 days
b. it can be any length as long as the customer continues to buy merchandise
c. that it should not greatly exceed the discount period
d. that is should not greatly exceed the credit term period

25. A company has an average inventory on hand of $40,000 and the average days to sell inventory is 29.2 days. What is the cost of goods sold?
a. $500,000
b. $1,168,000
c. $493,151
d. $584,000

26. A successful grocery store would probably have
a. a low inventory turnover
b. a high inventory turnover
c. zero profit margin
d. low volume

Solution Summary

The solution explains various multiple choice questions in accounting

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