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Accounting Questions

1. Financing activities for corporations include borrowing money and selling
shares of their own stock.

A.) True
B.) False

2. Income will always be greater under the cash basis of accounting than
under the accrual basis of accounting.

A.) True
B.) False

4. The statement of cash flows discloses significant events related to the
operating, investing, and financing activities of a business.

A.) True
B.) False

5. Under an effective system of internal control, errors occur only as a result
of fraud or dishonesty.

A.) True
B.) False

6. In horizontal analysis, the base year is the most current year being
examined.

A.) True
B.) False

7. The matching principle requires that efforts be related to
accomplishments.

A.) True
B.) False

8. All publicly traded U.S. companies must provide their shareholders with an
annual report each year.

A.) True
B.) False

9) Which of the following is not an advantage of the corporate form of
business organization?

a. No personal liability
b. Easy to transfer ownership
c. Favorable tax treatment
d. Easy to raise funds

10. Which of the following would be considered an "Other Comprehensive
Income" item?

a. Net income
b. Gain on disposal of discontinued operations
c. Extraordinary loss related to flood
d. Unrealized loss on available-for-sale securities

11. Incron Corporation began the year with retained earnings of $217,000.
During the year, the company issued $294,000 of common stock,
recorded expenses of $840,000, and paid dividends of $56,000. If
Incron's ending retained earnings was $231,000, what was the company's
revenue for the year?

a. $854,000
b. $910,000
c. $1,148,000
d. $1,204,000

12) Javier's Tune-Up Shop follows the revenue recognition principle. Javier
services a car on August 31. The customer picks up the vehicle on
September 1 and mails the payment to Javier on September 5. Javier
receives the check in the mail on September 6. When should Javier show
that the revenue was earned?

a. August 31
b. August 1
c. September 5
d. September 6

13. In a small business, the lack of certain separations of duties can best be
overcome by

a. bonding the employees.
b. getting the owner actively involved.
c. hiring only honest employees.
d. holding one person responsible for a given set of transactions.

14) 14. Long-term creditors are usually most interested in evaluating

a. liquidity and profitability.
b. consistency and profitability.
c. liquidity and solvency.
d. consistency and solvency.

15. Accounting information should be verifiable in order to enhance
a. comparability.
b. reliability.
c. consistency.
d. relevance.

16. If year one equals $800, year two equals $840, and year three equals
$880, the percentage to be assigned for year three in a trend analysis,
assuming that year 1 is the base year, is

a. 110%.
b. 105%.
c. 95%.
d. 100%.
17. Which one of the following items would never appear on a cash budget?

a. Office salaries expense
b. Interest expense
c. Depreciation expense
d. Travel expense

18. The going concern assumption underlies the

a. cost principle.
b. monetary unit assumption.
c. time period assumption.
d. full disclosure principle.

19. Can financial statements be prepared directly from the adjusted trial
balance?

a. They cannot. The general ledger must be used.
b. Yes, adjusting entries have been recorded in the general journal and
posted to the ledger accounts.
c. No, the adjusted trial balance merely proves the equality of the total
debit and total credit balances in the ledger after adjustments are
posted. It has no other purpose.
d. They can because that is the only reason that an adjusted trial balance
is prepared.

20) Which of the following statements is true?

a. Publicly traded U.S. companies must provide an annual report to their
shareholders when operating conditions change significantly.
b. An unqualified independent auditor's report must be included in the
annual report.
c. Notes to the financial statements do not need to be included in the
annual report because that information is only for internal users.
d. All of the statements are false.

21. Employees at B Corporation are paid $5,000 cash every Friday for
working Monday through Friday. The calendar year accounting period
ends on Wednesday, December 31. How much salary expense should be
recorded two days later on January 2?

a. $5,000
b. $3,000
c. None, matching requires the weekly salary to be accrued on December
31.
d. $2,000

22. If a company has a current ratio of 1.2:1, what respective effects will the
borrowing of cash by short-term debt and collection of accounts receivable
have on the ratio?

Short-term Borrowing Collection of Receivable
a. Increase No effect
b. Increase Increase
c. Decrease No effect
d. Decrease Decrease

23. Which of the following is an example of a bank reconciliation item that
requires an adjusting entry?

a. NSF check
b. Deposit in transit
c. Bank error
d. None of these items requires an adjusting entry.

24. If the average collection period is 55 days, what is the receivables
turnover?

a. 6.64 times
b. 7.30 times
c. 3.65 times
d. None of the above

25. Assets that are expected to be converted to cash or used in the business
within a relatively short period of time are called _________ ________.

26. The times interest earned ratio is calculated by dividing _______________
before __________________ and __________________ by interest
expense.

27. If the inventory turnover ratio is 5 times, and the average inventory was
$600,000, the cost of goods sold during the year was $______________
and the average days to sell the inventory was ______________ days.

28. The _____________ _______________ assumption states that the
economic life of a business can be divided into artificial time periods.

29. The claims of owners on the assets of a corporation are known as
_____________ _______________.

30. In a service company, revenue is earned when the service is __________.

31. The principle of internal control that prevents one individual from being
responsible for all the related activities of a given task is ____________
_____ _______________.

32. Employees of a company who evaluate the effectiveness of the company's
system of internal controls on a year-round basis are called __________
_____________.

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Solution Preview

1. Financing activities for corporations include borrowing money and selling
shares of their own stock.

A.) True
B.) False

Answer: A

2. Income will always be greater under the cash basis of accounting than
under the accrual basis of accounting.

A.) True
B.) False

Answer: B

4. The statement of cash flows discloses significant events related to the
operating, investing, and financing activities of a business.

A.) True
B.) False

Answer: A

5. Under an effective system of internal control, errors occur only as a result
of fraud or dishonesty.

A.) True
B.) False

Answer: A

6. In horizontal analysis, the base year is the most current year being
examined.

A.) True
B.) False

Answer: B

The base year is the earlier year being examined.

7. The matching principle requires that efforts be related to accomplishments.

A.) True
B.) False
Answer: B

Revenue is recorded as it is earned, not necessarily as cash is received.

8. All publicly traded U.S. companies must provide their shareholders with an
annual report each year.

A.) True
B.) False

Answer: A

9) Which of the following is not an advantage of the corporate form of
business organization?

a. No personal liability
b. Easy to transfer ownership
c. Favorable tax treatment
d. Easy to raise funds

Answer: C

10. Which of the following would be considered an "Other Comprehensive
Income" item?

a. Net income
b. Gain on disposal of discontinued operations
c. Extraordinary loss related to flood
d. Unrealized loss on available-for-sale securities

Answer: D

11. Incron Corporation began the year with retained earnings of $217,000.
During the year, the company issued $294,000 of common stock,
recorded expenses of $840,000, and paid ...

Solution Summary

This solution is comprised of answer to the accounting questions.

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