ACG 3100: Financial Reporting and Accounting Principles Practice Questions and Answers

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ACG 3100: Financial Reporting and Accounting Principles PracticeQuestions and AnswersACG 3100Correct Answers1.Which of the following is NOT normally an objective of financial reporting?a.To provide information about an entity's assets andclaims against those assetsb.To provide information that is useful in assessing an entity's sources and uses of cashc.To provide information that is useful in lending and investing decisionsd.To provide information about an entity's liquidation value2.As independent (or external) auditors, CPAs are primarily responsible fora.preparing financial statements in conformity with GAAP.b.certifying the accuracy of financial statements.c.expressing an opinion as to the fairness offinancial 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 exampleof the accounting concept ofa.accrual.b.consistency.c.comparability.d.going concern.4.According to the FASB's conceptual framework, the process of reporting an item in the financialstatements of an entity isa.realization.b.recognition.c.matching.d.allocation.5.Generally acceptedaccounting principlesa.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 financialreporting section of the SEC.d.derive their credibility and authority from general recognition and acceptance by theaccounting profession.6.On June 30, a company paid $3,600 for insurance premiums for the current year and debited theamount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amountexpired. 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 accountingpurposes?a.The event must be an arm's-length transaction.b.The event must berepeatable 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 involvea.real accounts only.b.nominal accounts only.c.real andnominal accounts.d.liability accounts only.9.If an inventory account is understated at year end, the effect will be to overstate thea.net purchases.b.gross margin.c.cost of goods available for sale.d.cost of goods sold.

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10.Beginning and ending Accounts Receivable balances were $28,000 and $24,000, respectively.Ifcollections from clients during the period were $80,000, then total services rendered on accountwere apparentlya.$76,000.b.$84,000.c.$104,000.d.$108,000.11.The following balances have been excerpted from Edwards' balance sheets:December 31, 2013December 31, 2012Prepaid Insurance ............$ 6,000$ 7,500Interest Receivable ..........3,70014,500Salaries Payable.............61,50053,000Edwards Company paid or collected during 2013 the following items:Insurance premiums paid ......$ 41,500Interest collected ...........123,500Salaries paid ................481,000The interest revenue on theincome statement for 2013 wasa.$90,500.b.$112,700.c.$117,500.d.$156,500.12.Comet Corporation's liability account balances at June 30, 2013, included a 10 percent note payable.The note is dated October 1, 2011, and carried anoriginal principal amount of $600,000. The noteis payable in three equal annual payments of $200,000 plus interest. The first interest andprincipal payment was made on October 1, 2012. In Comet's June 30, 2013, balance sheet, whatamount should be reported as Interest Payable for this note?a.$10,000b.$15,000c.$30,000d.$45,00013.The correct order to present current assets isa.cash, inventories, prepaid items, accounts receivable.b.cash, inventories, accounts receivable, prepaiditems.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 aa.plant asset.b.current liability.c.long-termliability.d.current asset.15.Which of the following is NOT a long-term investment?a.Stock held to exert influence on another companyb.Land held for speculationc.Trademarksd.Cash surrender value of life insurance16.Theoperating cyclea.measures the time elapsed between cash disbursement for inventory and cash collection ofthe sales price.b.refers to the seasonal variations experienced by business enterprises.c.should be used to classify assets andliabilities as current if it is less than one year.d.cannot exceed one year.

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17.Wolfe Co. was incorporated on July 1, 2014, with $200,000 from the issuance of stock and borrowedfunds 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 activitiesaffected owners' equity in 2014. AtDecember 31, 2014, Wolfe's liabilities had increased to $37,600. In Wolfe's December 31, 2014,balance sheet, total assets should be reported ata.$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:AccountsPayable........................................$108,900AdvancestoEmployees...................................4,500UnearnedRentRevenue...................................28,800EstimatedLiabilityUnderWarranties....................25,800CashSurrenderValueofOfficers'LifeInsurance........7,500BondsPayable...........................................555,000DiscountonBondsPayable...............................22,500Trademarks..............................................3,900The amount that should be recorded on Volta’s balance sheet as total liabilities isa.$696,000.b.$700,500.c.$703,500.d.$741,000.19.In contrast with a multiple-step income statement, a single-step income statement doesnotshow theamount ofa.income taxes on continuing operations.b.cost of goods sold.c.gross profit.d.earnings per share.20.The term"comprehensive income" as defined by the FASBa.must be reported on the face of the income statement.b.includes all changes in equity during a period except those resulting from investments byand distributions to owners.c.is the net change in owners' equity for the period.d.is synonymous with the term "net income."21.The following amounts are from Silverton Co.'s 2014 income statement:Sales.................................................$340,000Salesreturnsandallowances..........................5,000Costofgoodssold....................................132,000Utilitiesexpense.....................................66,000Interestrevenue......................................1,000Incometaxonoperations..............................28,000Extraordinarylossduetoearthquake,netoftax......5,000Interestexpense......................................4,000Salariesexpense......................................46,000Lossonsaleofinvestments...........................3,000What amount would Silverton show for income from continuing operations on a multiple-stepformat income statement?a.$52,000b.$68,000c.$57,000d.$96,00022.Saginaw Inc. decided on August 1, 2014, to dispose of a component of its business. The componentwas sold on November 30, 2014. Saginaw's income for 2014 included income of $250,000 fromoperating the discontinued segment from January 1 to the sale date. Saginaw incurred a loss onthe November 30 sale of $220,000. Ignoring income taxes, what amount should be reported in the2014 income statement as the net income or loss under "Discontinued Operations"?a.$220,000 lossb.$30,000 lossc.$30,000incomed.$250,000 income

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23.The financial statements of Mannassass Corporation for 2014 and 2015 contained the followingerrors:20142015EndingInventory$14,000overstated$20,000understatedRentExpense$4,800understated$6,600overstatedAssuming that none of the errors were detected or corrected, by what amount will 2014 operatingincome be overstated or understated?a.$9,200 overstatedb.$9,200 understatedc.$18,800 understatedd.$18,800 overstated24.In astatement of cash flows, receipts from sales of property, plant, and equipment would be classifiedas cash inflows froma.liquidating activities.b.operating activities.c.investing activities.d.financing activities.25.In a statement ofcash flows (indirect method), depreciation is treated as an adjustment to reported netincome because depreciationa.is an inflow of cash to a reserve account for asset replacement.b.reduces the reported net income and involves an inflow of cash.c.reduces the reported net income but does not involve an outflow of cash.d.usually represents a significant portion of operating expenses.26.Which of the following statements regarding cash equivalents is correct?a.A one-year Treasury notecould not qualify as a cash equivalent.b.All investments meeting the FASB's criteria for cash equivalents must be reported as such.c.The date a security is purchased determines its "original maturity" for cash equivalentclassification purposes.d.Once established, management's policy for classifying items as cash equivalents cannot bechanged.27.Which of the following wouldnotbe classified as an operating activity?a.Interest incomeb.Income tax expensec.Dividend incomed.Payment of dividends28.The amount reported as "Cash" on a company's balance sheet normally shouldexcludea.postdated checks that are payable to the company.b.cash in a payroll account.c.undelivered checks written and signed by thecompany.d.petty cash.29.When a specific customer's account is written off by a company using the allowance method, theeffect on net income and the net realizable value of the accounts receivable isNet Realizable ValueNet Incomeof Accounts Receivablea.IncreaseIncreaseb.DecreaseDecreasec.NoneNoned.DecreaseNone30.Thefollowing information is from the records of Sumter, Inc. for the year ended December 31, 2014.AllowanceforDoubtfulAccounts,January1,2014..$6,000(cr)Sales,2014.......................................2,920,000SalesReturnsandAllowances,2014................32,000

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