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Intermediate Financial Accounting Study Guide

1. Some of the irregular items found in the income statement may include:
a. Discontinued operations, extraordinary items, changes in accounting principles.
b. Discontinued operations, operating expenses and assets.
c. Extraordinary items, changes in estimates, and liabilities.
d. Changes in cash flows, changes in assets and changes in estimates.

2. Bonds that are sold over or below the face value (also called par value) are sold at:
a. Premium or discount
b. Fair value
c. Investment value
d. Net realizable value

3. A contingency is a material event that has an unknown outcome.
a. True
b. False
c. Neither

4. Comprehensive income includes all changes in equity except those resulting in distributions to the owners.
a. True
b. False

5. Ann Ruth wants to invest a certain amount of money each year for a period of 5 years and the investment will earn 6% compounded annually. At the end of 5 years she will need $40,000 accumulated. How should she compute her annual contribution?
a. $40,000 times the future value of a 5 year, 6% ordinary annuity of 1.
b. $40,000 divided by the future value of a 5 year, 6% ordinary annuity of 1.
c. $40,000 times the present value of a 5 year, 6% ordinary annuity due of 1.
d. $40,000 divided by the present value of a 5 year, 6% ordinary annuity of 1
e. $40,000 divided by 5 years multiplied by a 6% annuity due of 1.

6. If $4,000 is placed in a savings account today, what is the calculation to get the amount that would be available six years from now?
a. $4,000 x 1.080 x 6
b. $4,000 x 1.080 x 1.469
c. $4,000 x 1.166 x 3
d. $4,000 x 1.260 x 5

7. The basic limitations of ratio analysis include:
a. Lack of comparability among firms in a given industry.
b. Use of estimated items in accounting.
c. Use of historical costs in accounting.
d. All of these.
e. A and B only

8. Accounting Principles are "generally accepted" when:
a. An authoritative rule making body has established it as an official pronouncement.
b. It has been accepted as appropriate because of its universal application.
c. Both a and b.
d. Neither of these answers.
e. When it is issued by FASB.

9. Trade-offs between the characteristics of that make information useful may be necessary or beneficial. The issuance of an interim financial statement is an example of a trade-off between.
a. Relevance and reliability
b. Reliability and periodicity
c. Timeliness and verifiability
d. Neutrality and consistency

10. At the time a company prepays an account,
a. It debits an expense account to match against the revenues earned.
b It debits an asset account to show the service or benefit it will receive in the future.
c. It credits a liability account to show the obligation to pay for the service in the future.
d. Records a future contingency discounted over the term.

11. Porter Corporation reports the following information:

Net Income $250,000
Long Term Debt Payments $27,000
Depreciation Expense $70,000
Increase in Accounts Receivable $30,000
Operating Expenses $100,000

Porter should report cash provided by operating activities of:

a. $150,000
b. $210,000
c. $290,000
d. $350,000
e. $320,000

12. Under the cost recovery method of revenue recognition,
a. Income is recognized on a proportionate basis as the cash received on the sale of the product.
b. Income is recognized when the cash received on the sale of the product is greater than the cost of the product.
c. Income is recognized immediately.
d. Net profit is recognized by taking revenues and subtracting cost of sales and other operating expenses.
e. Costs are recovered immediately.

13. The installment sales method of recognizing profit for accounting purposes is acceptable if:
a. Collections in the year do not exceed 30% of the sales price.
b. An unrealized profit account is created.
c. Collection of the sales price is not reasonably assured.
d. The method is consistently used for all sales of similar merchandise.
e. Income is recognized over the life of the sales term less expenses.

14. Related party transactions that are material should not be recorded in the financial statements but only disclosed in the notes to the financial statements.
a. True
b. False
c. Neither

15. All of the following accounting processes which expense a portion of value over a period of time are similar to each other except for:
a. Depreciation
b. Amortization
c. Depletion
d. Accretion


Solution Summary

This solution is comprised of answers to general accounting multiple choice questions.