Intermediate Accounting Chpt. 5-8 (Nikolai & Bazley)

Front 1

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

Back 1

FALSE

Front 2

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.

Back 2

FALSE

Front 3

T/F
Expenses identified with the operating activities of more than one interim period are allocated among those periods

Back 3

TRUE

Front 4

T/F
Materiality for an interim period is determined in relation to income for the entire year.

Back 4

TRUE

Front 5

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.

Back 5

FALSE

Front 6

T/F
For the purpose of determining whether an operating segment is reportable, intersegment sales are included in the segment's revenues.

Back 6

TRUE

Front 7

T/F
On a company-wide basis a company must disclose information about its geographic areas and about revenues from major customers

Back 7

TRUE

Front 8

T/F
With horizontal analysis, relationships on the financial statements of one period are expressed as percentages, as well as dollars.

Back 8

FALSE

Front 9

T/F
A current ratio too low for the industry may indicate liquidity problems

Back 9

TRUE

Front 10

T/F
A company's financial statements are the responsibility of its managers

Back 10

TRUE

Front 11

T/F
An unqualified opinion contains five paragraphs: the introductory, materiality, scope, opinion, and disclaimer paragraphs

Back 11

FALSE

Front 12

T/F
The current ratio, computed by dividing current assets by current liabilities is the most commonly used indicator of short-run liquidity.

Back 12

TRUE

Front 13

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

Back 13

FALSE

Front 14

T/F
Common-size statements are financial statements expressed only in %'s.

Back 14

TRUE

Front 15

T/F
The timing of cash flows may cause cash flows from operations to vary more than the accrual income

Back 15

TRUE

Front 16

T/F
The efficient markets hypothesis presumes that the market price of a company securities will eventually adjust to all events affecting the company

Back 16

FALSE

Front 17

T/F
The audit committee of a company is usually composed of "Outside directors." rather than management.

Back 17

TRUE

Front 18

T/F
Financial Statements are prepared on a consolidated basis in order to include disaggregation of segment financial information

Back 18

FALSE

Front 19

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

Back 19

TRUE

Front 20

T/F
In intracompany comparison, a company's current financial performance is compared with the company's past results.

Back 20

TRUE

Front 21

T/F
In general, a low inventory turnover ratio indicates effective operations and a short operating cycle

Back 21

FALSE

Front 22

T/F
The SEC requires a management's discussion and analysis in a company's Form 10-K annual report

Back 22

TRUE

Front 23

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

Back 23

(e)all of the above

Front 24

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

Back 24

(c)75% of the segments revenues are earned form one unaffiliated customer

Front 25

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

Back 25

(a)measures the safety of creditors investments in a company

Front 26

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

Back 26

(e)all of the above

Front 27

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

Back 27

(d)all of the above

Front 28

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

Back 28

(c)dividend yield ratio

Front 29

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

Back 29

(d)current

Front 30

Horizontal analysis may be useful to

Back 30

evaluate trends in a companys operating results and financial position over time

Front 31

Interim financial statements are issued by all.....

Back 31

Publicly held companies

Front 32

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.

Back 32

(b)requires the presentation of comparative interim income statements on Form 10-Q

Front 33

T/F
Cash included in a sinking fund would ordinarily be classified under the cash heading on the balance sheet

Back 33

FALSE

Front 34

T/F
The measurement of cash on hand classified as a current asset includes postage stamps

Back 34

FALSE

Front 35

T/F
Proper cash management by a company requires the investment of idle funds on hand

Back 35

TRUE

Front 36

T/F
Cash control systems are employed to ensure the safeguarding of an organizations funds

Back 36

TRUE

Front 37

A cash budget would probably be an integral part of a company's cash planning system

Back 37

TRUE

Front 38

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

Back 38

FALSE

Front 39

T/F
The petty cash account is debited and the general Cash account is credited whenever the pertty cash fund is reimbursed

Back 39

FALSE

Front 40

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%

Back 40

TRUE

Front 41

If neither companies with bank accounts nor the banks made any accounting errors, the companies would not need to prepare bank reconciliations

Back 41

FALSE

Front 42

EFT's reduce the amount of paperwork in the accounting system, thus simplifying the internal control requirements relating to cash.

Back 42

FALSE

Front 43

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

Back 43

FALSE

Front 44

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

Back 44

FALSE

Front 45

At the date of sale most trade accounts receivable are recorded at their maturity value

Back 45

TRUE

Front 46

T/F
The collection period for most trade receivables is 60 days or less

Back 46

TRUE

Front 47

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

Back 47

FALSE

Front 48

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

Back 48

TRUE

Front 49

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

Back 49

TRUE

Front 50

T/F
The direct write-off method of accounting for bad debts is widely used by companies that sell on credit

Back 50

FALSE

Front 51

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

Back 51

FALSE

Front 52

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

Back 52

TRUE

Front 53

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

Back 53

TRUE

Front 54

T/F
When accounts receivable are factored, ownership of the receivables is transferred to the party acting as the factor

Back 54

TRUE

Front 55

When a company pledges its accounts receivables to a bank, the bank takes title to the receivables at teh time of the pledging

Back 55

FALSE

Front 56

T/F
Assigned accounts receivable should be disclosed separately from unassigned accounts receivable on the borrowing company's balance sheet

Back 56

TRUE

Front 57

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

Back 57

FALSE

Front 58

T/F
The term "non-interest-bearing note" is a misnomer because all notes do in fact contain an interest element

Back 58

TRUE

Front 59

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

Back 59

TRUE

Front 60

T/F
Travel advances to sales personnel are properly classified as trade accounts receivable

Back 60

FALSE

Front 61

T/F
Accounts receivable discounted with a recourse provision are always accounted for as factored receivables.

Back 61

FALSE

Front 62

T/F
FASB 133 requires a company to recognize derivative financial instruments as liabilities on the balance sheet

Back 62

FALSE

Front 63

Are postdated checks considered cash on the balance sheet?

Back 63

NO

Front 64

Are certificates of deposit considered cash on the Balance Sheet

Back 64

NO

Front 65

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

Back 65

b.)Decreases current assets

Front 66

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

Back 66

a.)Factored

Front 67

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

Back 67

c.)Net Credit sales or % of Sales

Front 68

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

Back 68

d.)$30,000

Front 69

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

Back 69

FALSE

Front 70

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.

Back 70

TRUE

Front 71

The finished goods inventory reported on the financial statements of a manufacturing company includes applied factory overhead

Back 71

TRUE

Front 72

Companies interested in determining income after capital has been maintained would be more likely to use the FIFO rather than the LIFO inventory method

Back 72

FALSE

Front 73

The company receiving consigned goods is called the consignor.

Back 73

FALSE

Front 74

Valuation of inventory using standard costs is acceptable for financial reporting unless the costs have been adjusted for variances occurring during the period.

Back 74

FALSE

Front 75

Goods under the economic control of a company are included in inventory, even if the goods are in transit

Back 75

TRUE

Front 76

A company that uses the gross price method records purchases discounts in its accounting system only if the discounts are not taken.

Back 76

FALSE

Front 77

The Purchase Discounts lost account is treated as a financial expense for the period if he net price method is used

Back 77

TRUE

Front 78

The inventory of a manufacturing company normally includes raw materials, goods in process, and finished goods.

Back 78

TRUE

Front 79

The specific identification method is a practical inventory method which is useful in preventing manipulation of profits

Back 79

FALSE

Front 80

If the FIFO cost flow assumption is used, the ending inventory consists of the latest costs incurred.

Back 80

TRUE

Front 81

FIFO periodic and FIFO perpetual usually result in different ending inventory values

Back 81

FALSE

Front 82

A new weighted average cost is calculated after each purchase if the moving average method is used

Back 82

TRUE

Front 83

The LIFO perpetual and LIFO periodic methods may result in different ending inventory values if LIFO layers are liquidated and replaced by year end

Back 83

TRUE

Front 84

Selling, ordering, and handling costs are considered product costs and are included in inventory for financial reporting

Back 84

FALSE

Front 85

When the FIFO cost flow assumption is used, holding gains are included in net income

Back 85

TRUE

Front 86

Incidental supplies used in the production process are normally included in the raw materials inventory of a manufacturing concern

Back 86

FALSE

Front 87

Selling costs and indirect labor are examples of variable manufacturing overhead costs

Back 87

FALSE

Front 88

International standards specify LIFO as the "benchmark" inventory method

Back 88

FALSE

Front 89

The FIFO and average cost methods are more susceptible to income manipulation than the LIFO method

Back 89

FALSE

Front 90

Consistent with the revenue recognition principle, purchasing activities may be a major component of the income of a company using the LIFO method

Back 90

FALSE

Front 91

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

Back 91

c)the Inventory account in the year end trial balance represents beginning inventory

Front 92

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

Back 92

c)goods sold by the Dayton Company and segregated in Daytons ware house while awaiting pickup by the Kent Company

Front 93

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.

Back 93

b)include direct materials, direct labor, variable factory overhead, and allocated fixed factory overhead

Front 94

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

Back 94

a)financing expense

Front 95

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

Back 95

d)inventory purchases are recorded at gross prices and discounts are recorded when taken

Front 96

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

Back 96

a)FIFO periodic

Front 97

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

Back 97

a)FIFO

Front 98

Fixed factory costs are treated as period expenses with the use of
a)full costing
b)absorption costing
c)standard costs
d)variable costing

Back 98

d)variable costing

Front 99

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.

Back 99

b)an exchange loss occurs when the exchange rate declines between the date a receivable is recorded and the date of cash recipt

Front 100

The moving average inventory cost flow method is applicable to which of the following inventory systems
Periodic or Perpetual

Back 100

Perpetual

Front 101

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

Back 101

a)The consignor but not the consignee

Front 102

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

Back 102

a)Prices decreased

Front 103

T/F
The term "market" in lower of cost or market is defined as the selling price at year end

Back 103

FALSE

Front 104

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

Back 104

TRUE

Front 105

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

Back 105

TRUE

Front 106

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

Back 106

TRUE

Front 107

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

Back 107

TRUE

Front 108

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

Back 108

FALSE

Front 109

The retail inventory method is GAAP for external financial statements but is not acceptable in applying the provisions of the Internal Revenue Code

Back 109

FALSE

Front 110

T/F
If net markups are exluded in computing the cost-to-retail ratio, the ratio will be higher than if they are included

Back 110

TRUE

Front 111

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

Back 111

TRUE

Front 112

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.

Back 112

TRUE

Front 113

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

Back 113

FALSE

Front 114

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

Back 114

FALSE

Front 115

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.

Back 115

FALSE

Front 116

If ending inventory is understated(but purchases are recorded correctly), income will be overstated in the current year.

Back 116

FALSE

Front 117

According to FASB Statement No. 49 the proceeds received under a product financing arrangement are recorded as sales revenue

Back 117

FALSE

Front 118

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.

Back 118

FALSE

Front 119

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

Back 119

TRUE

Front 120

T/F
A company using the LCM method recognizes holding losses, but does not recognize comparable holding gains

Back 120

TRUE

Front 121

A contingent loss is recorded if the loss is probable and can be reasonably estimated

Back 121

TRUE

Front 122

The gross profit method of estimating the cost of inventory is accepted for internal reporting and for interim reports when the method is disclosed.

Back 122

TRUE

Front 123

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

Back 123

TRUE

Front 124

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

Back 124

d)current replacement cost

Front 125

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

Back 125

c)net realizable value less normal profit margin

Front 126

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

Back 126

d)all of these

Front 127

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

Back 127

b)the company must recognize an expected loss in the period if the current market price is less than the fixed price

Front 128

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

Back 128

C)both

Front 129

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

Back 129

e)all of the above

Front 130

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

Back 130

a)markdown

Front 131

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

Back 131

a)3,750

Front 132

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

Back 132

b)in the current year AP are understated, and in the succeeding year retained earning is overstated