ACG 3100 Fundamentals of Financial Accounting: Concepts and Principles

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ACG 3100Fundamentalsof Financial Accounting: Concepts and PrinciplesACG 3100SOLUTION TO MULTIPLE QUESTION PROBLEM1.Which of the following is NOT normally an objective of financial reporting?a.To provide information about anentity's assets and claims 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 of financial statements.d.filing financial statements with the SEC.3.The assumed continuation of a business entity in the absence of evidence to the contraryis an example of 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 thefinancial statements of an entity isa.realization.b.recognition.c.matching.d.allocation.5.Generally accepted accounting 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 anddebited the amount to Prepaid Insurance. At December 31, the bookkeeper forgot to recordthe amount expired. The omission has the following effect on the financial statementsprepared 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

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accounting purposes?a.The event must be an arm's-length transaction.b.The event must be repeatable 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 and nominal 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.10.Beginning and ending Accounts Receivable balances were $28,000 and $24,000,respectively.If collections from clients during the period were $80,000, then total servicesrendered on account were 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 the income 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 percentnote payable. The note is dated October 1, 2011, and carried an original principal amount of$600,000. The note is payable in three equal annual payments of $200,000 plus interest. Thefirst interest and principal payment was made on October 1, 2012. In Comet's June 30, 2013,balance sheet, what amount should be reported as Interest Payable for this note?a.$10,000b.$15,000c.$30,000

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d.$45,00013.The correct order to present current assets isa.cash, inventories, prepaid items, accounts receivable.b.cash, inventories, accounts receivable, prepaid items.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-term liability.d.current asset.15.Which of the following is NOT along-term investment?a.Stock held to exert influence on another companyb.Land held for speculationc.Trademarksd.Cash surrender value of life insurance16.The operating cyclea.measures the time elapsed between cash disbursement for inventory and cash collectionof the sales price.b.refers to the seasonal variations experienced by business enterprises.c.should be used to classify assets and liabilities as current if it is less than one year.d.cannot exceed one year.17.Wolfe Co. was incorporated on July 1, 2014, with $200,000 from the issuance of stockand borrowed funds 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 activities affectedowners' equity in 2014. At December 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, trialbalance:Accounts Payable ........................................$108,900Advances to Employees ...................................4,500Unearned Rent Revenue ...................................28,800Estimated Liability Under Warranties ....................25,800Cash Surrender Value of Officers' Life Insurance ........7,500Bonds Payable ...........................................555,000Discount on Bonds Payable ...............................22,500Trademarks ..............................................3,900The amount that should be recorded on Volta’s balance sheet as total liabilities isa.$696,000.b.$700,500.

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