1. Which of the following should be disclosed
in a Summary of Significant Accounting Policies?
a. Types of executory contracts
b. Amount for cumulative effect of change in
accounting principle
c. Claims of equity holders
d. Depreciation method followed
2. An example of an inventory accounting
policy that should be disclosed in a Summary of Significant Accounting Policies
is the
a. amount of income resulting from the
involuntary liquidation of LIFO.
b. major backlogs of inventory orders.
c. method used for pricing inventory.
d. composition of inventory into raw materials,
work-in-process, and finished goods.
3. Errors and irregularities are defined as
intentional distortions of facts.
Errors Irregularities
a. Yes Yes
b. Yes No
c. No Yes
d. No No
4. Revenue of a segment includes
a. only sales to unaffiliated customers.
b. sales to unaffiliated customers and
intersegment sales.
c. sales to unaffiliated customers and interest
revenue.
d. sales to unaffiliated customers and other
revenue and gains.
5. An operating segment is a reportable
segment if
a. its
operating profit is 10% or more of the combined operating profit of profitable
segments.
b. its
operating loss is 10% or more of the combined operating losses of segments that
incurred an operating loss.
c. the
absolute amount of its operating profit or loss is 10% or more of the company's
combined operating profit or loss.
d. none of these.
6. A segment of a business enterprise is to be
reported separately when the revenues of the segment exceed 10 percent of the
a. total combined revenues of all segments
reporting profits.
b. total revenues of all the enterprise's
industry segments.
c. total export and foreign sales.
d. combined net income of all segments reporting
profits.
7. All of the following information about each
operating segment must be reported except
a. unusual items.
b. interest revenue.
c. cost of goods sold.
d. depreciation
and amortization expense.
8. The
profession requires disaggregated information in the following ways:
a. products
or services.
b. geographic
areas.
c. major
customers.
d. all
of these.
9. In
considering interim financial reporting, how does the profession conclude that
such reporting should be viewed?
a. As a "special" type
of reporting that need not follow generally accepted accounting principles.
b. As useful only if activity is
evenly spread throughout the year so that estimates are unnecessary.
c. As reporting for a basic
accounting period.
d. As reporting for an integral
part of an annual period
10. Accounting
principles are modified for the following at interim dates.
Revenue Losses
a. Yes Yes
b. Yes No
c. No Yes
d. No No
11. The
following methods of estimating inventory can be used at interim dates for
inventory pricing. May they also be used
at year end?
Gross Profit
Method Retail Inventory
Method
a. No No
b. No Yes
c. Yes No
d. Yes Yes
12. A
company that uses the last-in, first-out (LIFO) method of inventory pricing
finds at an interim reporting date that there has been a partial liquidation of
the base period inventory level. The decline is considered temporary and the
partial liquidation is expected to be replaced prior to year-end. The amount shown as inventory at the interim
reporting date should
a. be shown at the actual level,
and cost of sales for the interim reporting period should include the expected
cost of replacement of the liquidated LIFO base.
b. be shown at the actual level,
and cost of sales for the interim reporting period should reflect the
historical cost of the liquidated LIFO base.
c. not give effect to the LIFO
liquidation, and cost of sales for the interim reporting period should reflect
the historical cost of the liquidated LIFO base.
d. be shown at the actual level,
and the decrease in inventory level should not be reflected in the cost of
sales for the interim reporting period.
13. If
a cumulative effect type accounting change is made in other than the first
period of an enterprise's fiscal year, the cumulative effect of the change
should be
a. included
in net income of the period of change.
b. reported
as an adjustment of prior years' financial statements.
c. excluded from net income of the
period of change and reported as a cumulative effect in the first quarter.
d. reported
as an extraordinary item in the period of change.
14. The
required approach for handling extraordinary items in interim reports is to
a. prorate
them over all four quarters.
b. prorate
them over the current and remaining quarters.
c. charge
or credit the loss or gain in the quarter that it occurs.
d. disclose
them only in the notes.
15. A
financial forecast per professional pronouncements presents to the best of the
responsible party's knowledge and belief,
a. an
entity's expected financial position, results of operations, and cash flows.
b. an
assessment of the company's ability to be successful in the future.
c. given one or more hypothetical
assumptions, an entity's expected financial position, results of operations,
and cash flows.
d. an assessment of the company's
ability to be successful in the future under a number of different assumptions.
16. Which
of the following post-balance sheet events would generally require disclosure,
but no adjustment of the financial statements?
a. Retirement
of the company president
b. Settlement
of litigation when the event that gave rise to the litigation occurred prior to
the balance sheet date.
c. Employee
strikes
d. Issue
of a large amount of capital stock
17. Which
of the following subsequent events (post-balance sheet events) would require
adjustment of the accounts before issuance of the financial statements?
a. Loss
of plant as a result of fire
b. Changes
in the quoted market prices of securities held as an investment
c. Loss
on an uncollectible account receivable resulting from a customer’s major flood
loss
d. Loss
on a lawsuit, the outcome of which was deemed uncertain at year end.
*18. Cash,
short-term investments, and net receivables are the numerator for
Acid-Test
Ratio Current Ratio
a. Yes No
b. Yes Yes
c. No No
d No Yes
*19. Theoretically,
in computing the receivables turnover, the numerator should include
a. net
sales.
b. net
credit sales.
c. sales.
d. credit
sales.
*20. The
rate of return on common stock equity is calculated by dividing
a. net
income by average common stockholders’ equity.
b. net
income less preferred dividends by average common stockholders’ equity.
c. net
income by ending common stockholders’ equity.
d. net income less preferred
dividends by ending common stockholders’ equity.
*21. The
payout ratio can be calculated by dividing
a. dividends
per share by earnings per share.
b. cash dividends by net income less preferred
dividends.
c. cash
dividends by market price per share.
d. dividends per share by earnings
per share and dividing cash dividends by net income less preferred dividends.
*22. Which
of the following ratios measures long-term solvency?
a. Acid-test
ratio
b. Receivables
turnover
c. Debt
to total assets
d. Current
ratio
*23. The
calculation of the number of times interest is earned involves dividing
a. net
income by annual interest expense.
b. net
income plus income taxes by annual interest expense.
c. net income plus income taxes
and interest expense by annual interest expense.
d. none
of these.
*24. When
should an average amount be used for the numerator or denominator?
a. When
the numerator is a balance sheet item or items
b. When
the denominator is a balance sheet item or items
c. When
a ratio consists of an income statement item and a balance sheet item
d. When
the numerator is an income statement item or items
*25. The
basic limitations associated with ratio analysis include
a. the
lack of comparability among firms in a given industry.
b. the
use of estimated items in accounting.
c. the
use of historical costs in accounting.
d. all
of these.
26. Presented
below are four segments that have been identified by Gregg Productions:
Total
Revenue Operating
Segments (Unaffiliated) Profit (Loss) Identifiable Assets
A $225,000 $30,000 $900,000
B 600,000 (52,000) 900,000
C 225,000 4,000 450,000
D 90,000 6,000 225,000
For which of the segments would
information have to be disclosed in accordance with professional
pronouncements?
a. Segments
A, B, C, and D
b. Segments
A, B, and C
c. Segments
A and B
d. Segments
A and D
27. In
January 2004, Pace, Inc. estimated that its year-end bonus to executives would
be $480,000 for 2004. The actual amount paid for the year-end bonus for 2003
was $440,000. The estimate for 2004 is subject to year-end adjustment. What
amount, if any, of expense should be reflected in Pace's quarterly income
statement for the three months ended March 31, 2004 ?
a. $ -0-.
b. $110,000.
c. $120,000.
d. $480,000.
28. On
January 15, 2004 ,
Warren Company paid property taxes on its factory building for the calendar
year 2004 in the amount of $320,000. In the first week of April 2004, Warren made unanticipated
major repairs to its plant equipment at a cost of $800,000. These repairs will
benefit operations for the remainder of the calendar year. How should these
expenses be reflected in Warren 's
quarterly income statements?
Three
Months Ended
a. $ 80,000 $346,667 $346,667 $346,667
b. $ 80,000 $880,000 $ 80,000 $
80,000
c. $320,000 $800,000 $
-0- $ -0-
d. $280,000 $280,000 $280,000 $280,000
29. An
inventory loss from market decline of $1,200,000 occurred in May 2004, after
its March 31, 2004
quarterly report was issued. None of this loss was recovered by the end of the
year. How should this loss be reflected
in the company's quarterly income statements?
Three
Months Ended
a. $ -0- $ -0- $ -0- $1,200,000
b. $ -0- $400,000 $400,000 $400,000
c. $ -0- $1,200,000 $
-0- $ -0-
d. $300,000 $300,000 $300,000 $300,000
Use the following
information for questions 30 through 33.
Information for Garcia
Corp. is given below:
Garcia Corp.
Balance Sheet
Assets Equities
Cash $ 60,000 Accounts payable $ 126,000
Accounts receivable (net) 390,000 Federal
income tax payable 38,000
Inventories 488,000 Miscellaneous accrued payables 45,000
Plant and equipment, Bonds payable (10%, due
2009) 375,000
net of
depreciation 397,000 Preferred stock ($100 par, 6%
Patents 52,000 cumulative nonparticipating) 150,000
Other intangible assets 15,000 Common
stock (no par, 20,000
Total Assets $1,402,000 shares
authorized, issued
and
outstanding) 225,000
Retained
earnings 488,000
Treasury
stock—500 shares
of
preferred (45,000)
Total
Equities $1,402,000
Garcia Corp.
Income Statement
Year Ended December 31, 2004
Net sales $1,800,000
Cost of goods sold 1,200,000
Gross profit 600,000
Operating expenses
(including bond interest expense) 300,000
Income before income
taxes 300,000
Income tax 90,000
Net income $ 210,000
Additional
information:
There are no preferred dividends in arrears, the balances in the Accounts
Receivable and Inventory accounts are unchanged from January 1, 2004 , and there were no
changes in the Bonds Payable, Preferred Stock, or Common Stock accounts during
2004. Assume that preferred dividends for the current year have not been declared.
*30. At
December 31, 2004 ,
the current ratio was
a. 450
÷ 126.
b. 1,335
÷ 164.
c. 938
÷ 164.
d. 938
÷ 209.
*31. The
number of items interest was earned during 2004 was
a. 210
÷ 37.5.
b. 300
÷ 37.5.
c. 337.5
÷ 37.5.
d. 262.5
÷ 37.5.
*32. At
December 31, 2004 ,
the book value per share of common stock was
a. $33.40.
b. $34.90.
c. $35.65.
d. $35.20.
*33. The
rate of return for 2004 based on the year-end common stockholders' equity was
a. 210
÷ 704.
b. 210
÷ 713.
c. 201
÷ 704.
d. 201
÷ 713.
Use the following information for questions 34
through 39.
The following data are provided:
December 31
2004
2003
Cash $ 300,000 $ 200,000
Accounts
receivable (net) 320,000 240,000
Inventories 520,000 440,000
Plant
assets (net) 1,600,000 1,300,000
Accounts
payable 220,000 160,000
Taxes
payable 40,000 20,000
Bonds
payable 280,000 280,000
10%
Preferred stock, $50 par 400,000 400,000
Common
stock, $10 par 480,000 360,000
Paid-in
capital 320,000 260,000
Retained
earnings 800,000 700,000
Net
credit sales 2,560,000
Cost
of goods sold 1,680,000
Operating
expenses 580,000
Net
income 300,000
Additional information:
Depreciation included in cost of goods sold and
operating expenses is $244,000. On May 1, 2004 , 12,000 shares of common stock were issued.
The preferred stock is cumulative and the liquidation value is $56. The
preferred dividends were not declared
during 2004.
*34. The
receivables turnover for 2004 is
a. 2,560
÷ 320.
b. 1,680
÷ 320.
c. 2,560
÷ 280.
d. 1,680
÷ 280.
*35. The
inventory turnover for 2004 is
a. 2,560
÷ 520.
b. 1,680
÷ 520.
c. 2,560
÷ 480.
d. 1,680
÷ 480.
*36. The
profit margin on sales for 2004 is
a. 880
÷ 2,560.
b. 300
÷ 2,560.
c. 880
÷ 1,680.
d. 300
÷ 1,680.
*37. The
rate of return on common stock equity for 2004 is
a. 300
÷ 1,440.
b. 300
÷ 1,600.
c. 260
÷ 1,440.
d. 260
÷ 1,600.
*38. The
book value per share of common stock at 12/31/04 is
a. 1,512
÷ 48.
b. 1,552
÷ 48.
c. 1,560
÷ 48.
d. 1,600
÷ 44.
*39. At
December 31, 2004 ,
the acid-test ratio was
a. 620
÷ 260.
b. 620
÷ 540.
c. 840
÷ 320.
d. 1,140
÷ 260.
*40. Presented
below is information related to Ramsey Company.
Current
Assets
Cash $ 8,000
Short-term
investments 150,000
Accounts
receivable 122,000
Inventories 220,000
Prepaid
expenses 60,000
Total
current assets $560,000
Total
current liabilities are $250,000. What
is the acid-test ratio?
a. 2.24 to 1.
b. 2.0 to 1.
c. 1.12 to 1.
d. 0.64 to 1.
*41. Gomez
Company's net accounts receivable were $400,000 at December 31, 2003 and $440,000 at December 31, 2004 . Net cash sales for 2004 were $260,000. The
accounts receivable turnover for 2004 was 7.0. What were Gomez's total net
sales for 2004?
a. $1,820,000.
b. $2,940,000.
c. $3,200,000.
d. $2,680,000.
*42. During
2004, Noble, Incorporated purchased $1,800,000 of inventory. The cost of goods
sold for 2004 was $2,000,000 and the ending inventory at December 31, 2004 , was $400,000. What was the inventory turnover for 2004?
a. 3.6.
b. 4.5.
c. 4.0.
d. 5.0.
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D
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d
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*21.
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*25.
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C
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b
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d
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c
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*18.
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*22.
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3.
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C
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7.
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c
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11.
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15.
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*19.
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*23.
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c
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4.
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B
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8.
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d
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12.
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a
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16.
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*20.
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*24.
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26.
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b
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29.
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*32.
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*35.
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d
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*38.
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a
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*41.
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c
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27.
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*30.
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d
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*33.
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c
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*36.
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b
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*39.
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a
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*42.
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c
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28.
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a
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*31.
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c
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*34.
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c
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*37.
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c
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*40.
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c
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