acc/300 FINAL EXAM

acc/300
ACCOUNTING 300: Principles of Accounting
acc/300 FINAL EXAM 2011

TRUE OR FALSE
1. A business organized as a separate legal entity owned by stockholders is a partnership.

2. Owners of business firms are the only people who need accounting information.

3. Assets are resources owned by a business and provide future services or benefits to the business.

4. Cash is another term for Stockholders’ Equity.

5. The basic accounting equation states that Assets = Liabilities.

6. If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders’ equity totals $25,000.

7. Cash and supplies are both classified as current assets.

8. Earnings per share measures the net income earned on each share of common stock.

9. Solvency ratios measure the short-term ability of the company to pay its maturing obligations.

10. The statement of cash flows is divided into two sections corresponding to investing activities and financing activities.

11.GAAP stands for generally accepted accounting procedures.

12. A material item is one that is likely to affect a user’s decision.

13. All major U.S. corporations are required to maintain an adequate system of internal control.

14. The responsibility for keeping the records for an asset should be separate from the physical
custody of that asset.

15.Only large companies need to be concerned with a system of internal control.

16. Segregation of duties among employees eliminates the possibility of collusion.

17.Cash equivalents include money market accounts, commercial paper, and U.S. treasury bills held for ninety days or less.

18.The time period assumption states that the economic life of a business entity can be divided into artificial time periods.

19.The matching concept supports accrual accounting principles. 3


20. The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.



MULTIPLE CHOICE

21.Which of the following is not one of the three forms of business organization?
a. corporations.
b. partnerships.
c. proprietorships.
d. investors.

22. Which of the following would not be considered an external user of accounting data for the XYZ Company?
a. Internal Revenue Service Agent
b. Management
c. Creditors
d. Customers

23. The right to receive money in the future is called a(n)
a. account payable.
b. account receivable.
c. liability.
d. revenue.

24. The cost of assets consumed or services used is also known as
a. a revenue.
b. an expense.
c. a liability.
d. an asset.

25. Net income results when
a. Assets > Liabilities.
b. Revenues = Expenses.
c. Revenues > Expenses.
d. Revenues < Expenses.

26. Which of the following financial statements is concerned with the company at a point in time?
a. Balance sheet.
b. Income statement.
c. Retained Earnings statement.
d. Statement of cash flows. 4
27. Benson Company began the year with retained earnings of $175,000. During the year, the company recorded revenues of $250,000, expenses of $190,000, and paid dividends of $20,000. What was Benson’s retained earnings at the end of the year?
a. $255,000
b. $215,000
c. $405,000
d. $235,000

28. On a classified balance sheet, marketable securities are classified as
a. an intangible asset.
b. property, plant, and equipment.
c. a current asset.
d. a long-term investment.

29. Trademarks would appear in which balance sheet section?
a. Intangible assets
b. Investments
c. Property, plant, and equipment
d. Current assets

30. Working capital is calculated by taking
a. current assets plus current liabilities.
b. current assets minus current liabilities.
c. current assets divided by current liabilities.
d. current assets times current liabilities.

31.Which one of the following is not an objective of a system of internal controls?
a. Safeguard company assets
b. Overstate liabilities in order to be conservative
c. Enhance the accuracy and reliability of accounting records
d. Reduce the risks of errors

32. From an internal control standpoint, the asset most susceptible to improper diversion and use is
a. prepaid insurance.
b. cash.
c. buildings.
d. land.

33. Sonic Corporation acquired a new machine. It signed a note to pay for the machine over a 5-year period. Which of the following best reflects the journal entry recorded?
a.) Debit cash, credit machine
b.) Debit machine, credit cash
c.) Debit machine, credit note payable
d.) Debit machine, credit retained earnings 5
34. One of the accounting concepts upon which adjustments for prepayments and accruals are based is
a. matching.
b. cost.
c. monetary unit.
d. economic entity.

35. An accounting time period that is one year in length is called
a. a fiscal year.
b. an interim period.
c. the time period assumption.
d. a reporting period.

36. The revenue recognition principle dictates that revenue should be recognized in the accounting records
a. when cash is received.
b. when it is earned.
c. at the end of the month.
d. in the period that income taxes are paid.

37. The matching principle matches
a. customers with businesses.
b. expenses with revenues.
c. assets with liabilities.
d. creditors with businesses.

38. A company spends $20 million dollars for an office building. Over what period should the cost be written off?
a. When the $20 million is expended in cash
b. All in the first year
c. Over the useful life of the building
d. After $20 million in revenue is earned

39. A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be earned?
a. December 5
b. December 10
c. November 30
d. December 1 6
40. Which of the following accounts would not likely need to be adjusted at year end?
a. Office Supplies
b. Unearned Revenue
c. Prepaid Advertising
d. Land

41. The Village Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $3,000 on hand. The adjusting entry that should be made by the company on June 30 is
a. Debit Laundry Supplies Expense, $3,000; Credit Laundry Supplies, $3,000.
b. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,000.
c. Debit Laundry Supplies, $3,500; Credit Laundry Supplies Expense, $3,500.
d. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,500.

42. Accumulated Depreciation is a(n)
a. expense account.
b. stockholders’ equity account.
c. liability account.
d. contra asset account.

43. Lawton Company collected $8,400 in May of 2006 for 4 months of service which would take place from October of 2006 through January of 2007. The revenue reported from this transaction during 2006 would be:
a.) $0
b.) $6,300
c.) $8,400
d.) $2,010

44. Which of the following federal laws imposed more responsibilities on corporate executives and boards of directors to ensure that companies' internal controls are reliable and effective?
a. Fair Housing Act
b. Internal Revenue Code
c. Sarbanes-Oxley Act of 2002 (SOX)
d. The Patriot Act

45. Which of the following is not a GAAP financial statement?
a. Balance Sheet
b. Income Statement
c. Statement of Competitor Profitability
d. Cash Flow Statement

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