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132 Cards in this Set

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  • Back
T/F
A qualified opinion by an auditor states that the financial statements as a whole do not present the information fairly, in conformity with GAAP
FALSE
T/F
A company must provide certain disaggregated information about an operating segment only if it satisfies all three of the following tests: the revenue test, the profit test, and the asset test.
FALSE
T/F
Expenses identified with the operating activities of more than one interim period are allocated among those periods
TRUE
T/F
Materiality for an interim period is determined in relation to income for the entire year.
TRUE
T/F
Publicly traded companies are required to disclose CFO per share, as well as earnings per share, on the face of the income statement.
FALSE
T/F
For the purpose of determining whether an operating segment is reportable, intersegment sales are included in the segment's revenues.
TRUE
T/F
On a company-wide basis a company must disclose information about its geographic areas and about revenues from major customers
TRUE
T/F
With horizontal analysis, relationships on the financial statements of one period are expressed as percentages, as well as dollars.
FALSE
T/F
A current ratio too low for the industry may indicate liquidity problems
TRUE
T/F
A company's financial statements are the responsibility of its managers
TRUE
T/F
An unqualified opinion contains five paragraphs: the introductory, materiality, scope, opinion, and disclaimer paragraphs
FALSE
T/F
The current ratio, computed by dividing current assets by current liabilities is the most commonly used indicator of short-run liquidity.
TRUE
T/F
Publicly traded companies presenting interim financial statements should treat the interim period primarily as a separate reporting period,rather than as an integral part on an annual period
FALSE
T/F
Common-size statements are financial statements expressed only in %'s.
TRUE
T/F
The timing of cash flows may cause cash flows from operations to vary more than the accrual income
TRUE
T/F
The efficient markets hypothesis presumes that the market price of a company securities will eventually adjust to all events affecting the company
FALSE
T/F
The audit committee of a company is usually composed of "Outside directors." rather than management.
TRUE
T/F
Financial Statements are prepared on a consolidated basis in order to include disaggregation of segment financial information
FALSE
T/F
When a company is required to report disaggregated information about its operating segments, enough reportable segments must be disclosed so that their combined revenues make up at least 75% of total company revenues
TRUE
T/F
In intracompany comparison, a company's current financial performance is compared with the company's past results.
TRUE
T/F
In general, a low inventory turnover ratio indicates effective operations and a short operating cycle
FALSE
T/F
The SEC requires a management's discussion and analysis in a company's Form 10-K annual report
TRUE
Minimum interim disclosures by a publicy held company include.
(a)sales or gross revenues
(b)earnings per share
(c)significant changes in estimates of income taxes
(d)contingent items
(e)all of the above
(e)all of the above
Which of the following facts would NOT make an operating segment reportable?
(a)the segment's revenues, including intersegment sales, are 20% of the total company's revenues
(b) the segment's profit is $50k, while the company's profit is $430k
(c)75% of the segments revenues are earned from one unaffiliated customer
(d)the segments identifiable assets are 11% of the companys assets
(c)75% of the segments revenues are earned form one unaffiliated customer
The times interest earned ratio
(a)measures the safety of creditors investments in a company
(b)shows the net assets per share of a company's stock
(c) relates accrual income to cash flows
(d)is the most commonly used indicator of shor-run liquidity
(a)measures the safety of creditors investments in a company
Info. about which of the following is required in a company's financial statements under FASB Statement No. 131?
(a)types of products and services from which each reportable segment earns its revenue
(b)revenue from external customers for each product and service
(c)information about geographic areas
(d)revenues from major customers
(e)all of the above
(e)all of the above
For each reportable operating segment a company must disclose
(a)total assets and total related capital expenditures
(b)interest revenue and interest expense
(c)profit or loss
(d)all of the above
(d)all of the above
Which of the following ratios indicates the rate of return actually received by shareholders
(a)profit margin
(b)return on stockholders equity
(c)dividend yield ratio
(d)current ratio
(c)dividend yield ratio
Which of the following ratios is a commonly used indicator of short-run liquidity?
(a)inventory turnover
(b)price/earnings
(c)profit margin
(d)current
(d)current
Horizontal analysis may be useful to
evaluate trends in a companys operating results and financial position over time
Interim financial statements are issued by all.....
Publicly held companies
The SEC
(a)reviews the audited information of all corporations
(b)requires the presentation of comparative interim income statements on Form 10-Q
(c)requires that publicly traded companies file interim financial info on a Form 10-K
(d)requires that a company include a managements discussion and analysis in any published financial statements.
(b)requires the presentation of comparative interim income statements on Form 10-Q
T/F
Cash included in a sinking fund would ordinarily be classified under the cash heading on the balance sheet
FALSE
T/F
The measurement of cash on hand classified as a current asset includes postage stamps
FALSE
T/F
Proper cash management by a company requires the investment of idle funds on hand
TRUE
T/F
Cash control systems are employed to ensure the safeguarding of an organizations funds
TRUE
A cash budget would probably be an integral part of a company's cash planning system
TRUE
In deciding whether to adopt an internal control procedure. a key requirement is that the cost of the control must equal the benefit derived from it
FALSE
T/F
The petty cash account is debited and the general Cash account is credited whenever the pertty cash fund is reimbursed
FALSE
The Bartow Corp. borrowed money from a bank which required the loan agreement to include a compensating balance requirement. If the interest rate charged on the loan was 10%, the compensating balance will cause the effective interest rate to be more than 10%
TRUE
If neither companies with bank accounts nor the banks made any accounting errors, the companies would not need to prepare bank reconciliations
FALSE
EFT's reduce the amount of paperwork in the accounting system, thus simplifying the internal control requirements relating to cash.
FALSE
T/F
Since the existence of a written promise to pay provides strong legal evidence to support collection, it is not necessary to provide a bad debt estimate on notes receivable
FALSE
T/F
The adjusting JE to record estimated bad debts under the allowance method involves a debit to Bad Debt Expense and credits to the accounts of customers whose balances are believed to be uncollectible
FALSE
At the date of sale most trade accounts receivable are recorded at their maturity value
TRUE
T/F
The collection period for most trade receivables is 60 days or less
TRUE
T/F
If a credit sale is made with terms of 2/10, n/30, the customer is given a 10% discount if the bill is paid in less than 30 days
FALSE
If the seller grants a cash discount to credit customers, it is acceptable accounting practice to record both the sale and the receivable net of the available cash discount
TRUE
T/F
When sales returns and allowances are not material to a company's financial statements, they are usually not accounted for in the statements on an estimated basis
TRUE
T/F
The direct write-off method of accounting for bad debts is widely used by companies that sell on credit
FALSE
T/F
If the proportion of credit sales to total sales varies from period to period a company should base its bad debt loss estimate on total sales rather than credit sales
FALSE
T/F
Basing a bad debt loss estimate on the relationship between actual losses and the accounts receivable total does not precisely match a company's current expenses with current revenues
TRUE
T/F
A bad debt adjusting entry that is developed from an aging of acounts receivable must take into consideration the preadjustment balance in the allowance for doubtful accounts
TRUE
T/F
When accounts receivable are factored, ownership of the receivables is transferred to the party acting as the factor
TRUE
When a company pledges its accounts receivables to a bank, the bank takes title to the receivables at teh time of the pledging
FALSE
T/F
Assigned accounts receivable should be disclosed separately from unassigned accounts receivable on the borrowing company's balance sheet
TRUE
T/F
An agreement to allow for credit card sales between a retail company and a national credit card company is essentially a pledge agreement
FALSE
T/F
The term "non-interest-bearing note" is a misnomer because all notes do in fact contain an interest element
TRUE
FASB Statement No. 5 requires that the contingent liability from discounted notes receivables be disclosed in a company's financial statements, even if the possibility of default by the maker of the note is remote
TRUE
T/F
Travel advances to sales personnel are properly classified as trade accounts receivable
FALSE
T/F
Accounts receivable discounted with a recourse provision are always accounted for as factored receivables.
FALSE
T/F
FASB 133 requires a company to recognize derivative financial instruments as liabilities on the balance sheet
FALSE
Are postdated checks considered cash on the balance sheet?
NO
Are certificates of deposit considered cash on the Balance Sheet
NO
A company is in its first year of operations and has never written off any accounts receivable as uncollectile. When the allowance method of recognizing bad debt expense is used, the entry to recognize that expense

a.)Increases net income
b.)Decreases current assets
c.)Has no effect on current assets
d.)Has no effect on net income
b.)Decreases current assets
When the accounts receivable of a company are sold outright to a company that normally buys accounts receivables of other companies without recourse, the accounts receivables have been

a.)Factored
b.)Assigned
c.)Pledged
d.)Collateralized
a.)Factored
A method of estimating bad debts that focuses on the income statement rather than the balances sheet is the allowance method based on
a.)Direct write-off
b.)Aging the trade receivable accounts
c.)Credit Sales
d.)The balance in the trade recievable accounts
c.)Net Credit sales or % of Sales
Marmmol Corporation uses the allowance method for bad debts. During 2004 Marmol charged $30k to bad debt expense and wrote off $25.2k of uncollectible A/R. These transactions resulted in a decrease in working capital of

a.)$0
b.)$4,800
c.)$25,200
d.)$30,000
d.)$30,000
T/F
One advantage of a perpetual inventory system is that a physical inventory does not need to be taken at year end, because a continuous record of inventory transactions is provided in the accounting records
FALSE
The balance of the Merchandise Inventory account on a mid-period trial balance for a company that uses a periodic inventory system is the beginning merchandise inventory.
TRUE
The finished goods inventory reported on the financial statements of a manufacturing company includes applied factory overhead
TRUE
Companies interested in determining income after capital has been maintained would be more likely to use the FIFO rather than the LIFO inventory method
FALSE
The company receiving consigned goods is called the consignor.
FALSE
Valuation of inventory using standard costs is acceptable for financial reporting unless the costs have been adjusted for variances occurring during the period.
FALSE
Goods under the economic control of a company are included in inventory, even if the goods are in transit
TRUE
A company that uses the gross price method records purchases discounts in its accounting system only if the discounts are not taken.
FALSE
The Purchase Discounts lost account is treated as a financial expense for the period if he net price method is used
TRUE
The inventory of a manufacturing company normally includes raw materials, goods in process, and finished goods.
TRUE
The specific identification method is a practical inventory method which is useful in preventing manipulation of profits
FALSE
If the FIFO cost flow assumption is used, the ending inventory consists of the latest costs incurred.
TRUE
FIFO periodic and FIFO perpetual usually result in different ending inventory values
FALSE
A new weighted average cost is calculated after each purchase if the moving average method is used
TRUE
The LIFO perpetual and LIFO periodic methods may result in different ending inventory values if LIFO layers are liquidated and replaced by year end
TRUE
Selling, ordering, and handling costs are considered product costs and are included in inventory for financial reporting
FALSE
When the FIFO cost flow assumption is used, holding gains are included in net income
TRUE
Incidental supplies used in the production process are normally included in the raw materials inventory of a manufacturing concern
FALSE
Selling costs and indirect labor are examples of variable manufacturing overhead costs
FALSE
International standards specify LIFO as the "benchmark" inventory method
FALSE
The FIFO and average cost methods are more susceptible to income manipulation than the LIFO method
FALSE
Consistent with the revenue recognition principle, purchasing activities may be a major component of the income of a company using the LIFO method
FALSE
Which one of the following is TRUE for periodic inventory but NOT TRUE for perpetual?
a)a physical inventory count should be made at least once a year
b)the Merchandise Inventory account in the year-end trial balance represents ending inventory
c)the Inventory account in the year end trial balance represents beginning inventory
d)material freight-in costs should be treated as an inventory cost
c)the Inventory account in the year end trial balance represents beginning inventory
Which one of the following should NOT be included in the ending inventory of the Dayton Company
a)Dayton goods in transit to Kent Company shipped FOB Kent Factory
b)goods in transit to Dayton Company that were shipped FOB shipping point
c)goods sold by the Dayton Company and segregated in Daytons ware house while awaiting pickup by the Kent Company
d)inventory shipped by Dayton COmp on consignment basis and held by the consignee at the balance sheet date
c)goods sold by the Dayton Company and segregated in Daytons ware house while awaiting pickup by the Kent Company
Which one of the following items appropriately describes the inventory cost for a manufacturing company based on GAAP?
a)include direct materials, direct labor, and variable factory overhead
b)include direct materials, direct labor, variable factory overhead, and allocated fixed factory overhead
c)include direct materials and direct labor costs, but exclude all overhead cost from inventory
d)include direct materials, direct labor, variable factory overhead, allocated factory overhead, and variable selling expenses.
b)include direct materials, direct labor, variable factory overhead, and allocated fixed factory overhead
PUrchases discounts lost should be treated as
a)financing expense
b)reduction of cost of inventory
c)addition to cost of ending inventory
d)adjustment to COGS
a)financing expense
Under the gross price method
a)purchases discounts taken increase the economic benefit expected from the inventory
b)the correct inventory cost is recorded regardless of whether purchases discounts are taken
c)purchases discounts are recorded only when not taken
d)inventory purchases are recorded at gross prices and discounts are recorded when taken
d)inventory purchases are recorded at gross prices and discounts are recorded when taken
In a period of decreasing prices, which cost flow assumption will result in the lowest income?
a)FIFO periodic
b)weighted average
c)dollar value LIFO
d)LIFO perpetual
a)FIFO periodic
Which one of the following inventory methods is least susceptible to profit manipulation by management?
a)FIFO
b)LIFO perpetual
c)LIFO periodic
d)dollar-value LIFO
a)FIFO
Fixed factory costs are treated as period expenses with the use of
a)full costing
b)absorption costing
c)standard costs
d)variable costing
d)variable costing
Which of the following statement concerning foreign currency transactions is true?
a)an exchange gain occurs when the exchange rate increases between the date a payable is recorded and the date of cash payment
b)an exchange loss occurs when the exchange rate declines between the date a receivable is recorded and the date of cash recipt
c)an exchange gain occurs when the exchange rate declines between the date a receivable is recorded and the date of cash receipt
d)an echange loss occurs when the exchange rate declines between the date a payable is recorded and the date of cash payment.
b)an exchange loss occurs when the exchange rate declines between the date a receivable is recorded and the date of cash recipt
The moving average inventory cost flow method is applicable to which of the following inventory systems
Periodic or Perpetual
Perpetual
Goods on consignment should be included in the inventory of
a)The consignor but not the consignee
b)Both the consignor and the consignee
c)The consignee but not the consignor
d)Neither the consignor nor the consignee
a)The consignor but not the consignee
Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method
a)Prices decreased
b)Prices remained unchanged
c)Prices increased
d)Price trend cannot be determined from info given
a)Prices decreased
T/F
The term "market" in lower of cost or market is defined as the selling price at year end
FALSE
T/F
The ceiling limit (net realizable value) under the LCM rule is the selling price in the normal course of business less predictable costs of completion and disposal
TRUE
T/F
Valuing inventory at a value lower than the floor would result in an excessive loss in the year of a writedown and an excessive profit in a subsequent period of sale
TRUE
T/F
A temporary decline in the utility of inventory due to the lower of cost or market rule is ignored in interim-period financial statements if the decline is expected to reverse by the end of the annual period
TRUE
T/F
A company must recognize a loss in the financial statements when the year-end market price is below a fixed price for a cancelable purchase commitment
TRUE
Disclosure in the notes to the financial statements, rather than the accrual of losses, is preferred for purchase commitment losses on noncancelable purchase commitments if the current market price is less than the fixed contract price
FALSE
The retail inventory method is GAAP for external financial statements but is not acceptable in applying the provisions of the Internal Revenue Code
FALSE
T/F
If net markups are exluded in computing the cost-to-retail ratio, the ratio will be higher than if they are included
TRUE
T/F
A company using the retail inventory method for interim financial statements subtracts employee discounts and estimated normal inventory shrinkage to compute ending inventory at retail
TRUE
The cost-to-retail ratio for the dollar-value retail LIFO method is computed in the same manner as used for the LIFO retail method.
TRUE
Applying the lower of cost or market value rule to the inventory on a category-by-category basis will usually result in the most conservative inventory valuation of the three acceptable methods
FALSE
If a market decline occurs in an interim period and is considered permanent, it should be ignored because the market price will normally increase in a subsequent annual period
FALSE
It is acceptable to write inventory up to original cost if a recovery in utility occurs in an annual period subsequent to the lower of cost or market writedown.
FALSE
If ending inventory is understated(but purchases are recorded correctly), income will be overstated in the current year.
FALSE
According to FASB Statement No. 49 the proceeds received under a product financing arrangement are recorded as sales revenue
FALSE
T/F
When the retail inventory method is used, and the lower of cost or market rule is applied with the average cost flow assumption, net markups and markdowns are included in, but beginning inventory is excluded from, the computation of cost-to-retail ratio.
FALSE
A sepearate inventory valuation account and a loss account are used under the allowance method to record a write-down of inventory to market value
TRUE
T/F
A company using the LCM method recognizes holding losses, but does not recognize comparable holding gains
TRUE
A contingent loss is recorded if the loss is probable and can be reasonably estimated
TRUE
The gross profit method of estimating the cost of inventory is accepted for internal reporting and for interim reports when the method is disclosed.
TRUE
T/F
An assumption underlying the retail inventory method is that either the company's markup is uniform for all inventory items or that the proportions of items with different markups are the same in ending inventory and goods available for sale
TRUE
The term "market" in lower of cost or market refers to
a)market price at time of purchase
b)selling price by the retailer
c)selling price by the retailer less normal profit
d)current replacement cost
d)current replacement cost
The lower limit in the lower of cost or market is
a)selling price
b)selling price less costs of disposal
c)net realizable value less normal profit margin
d)selling price less normal profit
c)net realizable value less normal profit margin
The lower of cost or market rule may be applied to
a)individual inventory items
b)categories of inventory
c)total inventory
d)all of these
d)all of these
If a company has a noncancelable purchase commitment at a fixed price
a)the company must recognize a gain in the period if the current market price is greater thant the fixed price
b)the company must recognize an expected loss in the period if the current market price is less than the fixed price
c)the company must disclose a loss in a note to the financial statements rather than recognize the loss when the current market price is less than the fixed contract price
d)no disclosure or accounting entry is necessary to record the expected gain or loss on noncancelable fixed-price contracts
b)the company must recognize an expected loss in the period if the current market price is less than the fixed price
Stating inventory at an amount in excess of cost is a violation of
a)the conservatism convention but not the revenue recognition principle
b)the revenue recognition principle but not the conservatism convention
c)both
d)neither
C)both
The gross profit method may be used
a)to estimate the amount of an inventory theft
b)to estimate the amount of the loss of inventory from flood or fire
c)by auditors to estimate the value of inventory
d)to determine the inventory value for interim financial statements
e)all of the above
e)all of the above
Which of the following would NOT have an effect on the cost-to-retail ratio if the lower of average cost or market rule is applied to the the retail-inventory method?
a)markdown
b)markup cancellation
c)additional markup
d)markup
a)markdown
The Givens Company had beginning inventory of $2,250 at cost and $2,500 at retail; purchases of $15k at cost and $20k at retail;retail sales of $18k; markups of $1k and markdowns of $500. The cost of ending inventory using average cost under the retail method is
a)3,750
b)17,250
c)3,860
d)2,000
a)3,750
The accountants at the Piper Company neglected to record a 10k credit purchase in the Purchases account. However, ending inventory is reported at the correct value. As a result, which of the following statements is correct?
a)in the current year income is correct, and in the succeeding year AP are understated
b)in the current year AP are understated, and in the succeeding year retained earning is overstated
c)in the current year cost of goods sold is overstated, and in the succeeding year AP are overstated
d)in the current year income is understated and in the succeeding year ending inventory is overstated
b)in the current year AP are understated, and in the succeeding year retained earning is overstated