EXAM99.QUZ 21. Shifting from the completed contract method to the percentage of completion method is considered to be a. a change in accounting principle b. a change in accounting principal c. an increase in corporate principal d. a weakness in accountant's principles 22. Juan Gonzales is paid $12.25 per hour with overtime at 1.5. He has three children and 19% is his FIT percentage, based on gross pay. His union dues are $10 per week. The company group hospitali zation insurance premium for him is $100 monthly, $15 each week being withheld so the company can obtain a partial reimbursement. He worked 44.5 hours this week. The take-home pay is a. $12.25 x 44.5 b. $12.25 x 40 + $12.25 x 1.5 x 4.5 c. (b), less FICA, LESS 19% of (b), and less $25 d. 81% of (a) 23. Blacker Co., Inc., exchanged a business car for a new car. The old car had an original cost of $7,500, an undepreciation cost of $1,600, and a FMV of $2,000 when exchanged. In addition, Blacker paid $6,200 cash for the new car. The list price of the new car was $8,300. At what amount should the new car be reported for financial accounting purposes? a. $7,500 b. 7,800 c. 8,200 d. 8,300 22. ABC, Inc., buys a tufting machine expected to last 10 years, for $250,000 cash, on August 1, 1987. What is the depreciation expense for 1987, based on DDB, with residual value being esti mated at 15% of cost? Follow the 1/2 year convention (and assume tax law also allows such). a. $25,000 b. $250,000 times .85 times 1/2 times 1/10 c. $250,000 times .85 times 5/12 times 2/10 d. $250,000 times .85 times 1/2 times 2/10 1. A stock dividend will decrease retained earnings. 2. Account titles should identify the dividends payable account as to whether the dividends are payable in cash or property. 3. There is no such thing as negative retained earnings; however, there may be a debit balance in a bookkeeping account named Retained Earnings. 4. Common stock is a residual equity. 5. As to the raising of capital, preferred stock may be more expensive than using bonds, since the bonds' interest payments are tax deductible. ___. One objective of a stock split is to a. decrease the FMV per share b. increase the FMV per share c. have smaller stock certificates d. reduce the number of shareholders ___. EPS should normally be _____________ than DPS a. lower b. higher c. equal to d. more marketable ___. A PE ratio of 100 would generally indicate a. a stable stock b. a sound investment for very conservative investors c. a company without a current net income d. an unstable company e. a highly speculative investment ___. Preferred stock is "preferred" in part, because it a. gets a higher DPS than common b. has priority over bonds in liquidations c. gets no priority over common stocks in liquidations d. is printed on larger certificates e. none of the above ___. Participating preferred stock is usually _____ ____ the FMV of non-participating preferred stock, other things equal. a. more than b. less than c. equal to d. (indeterminate question) ___. If securities cannot be identified as to their cost, then a. FIFO is required b. LIFO is required c. average cost is required d. FMV is used as cost, reducing the "basis" on the books 68. If there is a credit balance in Retained Earnings of $10,000 and a debit balance in Cash of $18,000, then a. dividends are limited to $18,000 inclusive. b. dividends up to $10,000 can be declared. c. only $10,000 of cash dividends are legal. d. dividends are illegal. 69. Appropriated Retained Earnings implies a. a restriction of the dividend base b. a loss c. a detrimental uncertainty d. a sinking fund exists 58. Which of the following is impossible re common stocks? a. FMV = Book Value b. Book Value = Par Value c. FMV = Par Value d. Book Value = FMV = Par Value 67. When a business incorporates, the new corporation issues common stock of $1 par and then reacquires the stock at $2. This means there is, among other things, a debit to a. Treasury stock for $2 per share b. Common stock for $1 per share c. Cash for $2 per share d. Donated capital for $1 per share 68. If there is a credit balance in Retained Earnings of $10,000 and a debit balance in Cash of $18,000, then a. dividends are limited to $18,000 inclusive. b. dividends up to $10,000 can be declared. c. only $10,000 of cash dividends are legal. d. dividends are illegal. 69. Appropriated Retained Earnings implies a. a restriction of the dividend base b. a loss c. a detrimental uncertainty d. a sinking fund exists 70. Which of the following is impossible re common stocks? a. FMV = Book Value b. Book Value = Par Value c. FMV = Par Value d. Book Value = FMV = Par Value 9. Your instructor is "against" comparative reports that show an "Over(Under) Budget" variance column; he is "for" the column headings, "Actual, Budgeted, Favorable(Unfavorable) Variance." 10. GAAP is not required in internal managerial accounting. 1. Depreciation has an impact on cash flow because a. it reduces the tax check. b. it reduces the dividend base. c. it "holds back income assets." d. it is an expense that requires no funds outflow. 2. Costs or expenses allocated to departments should involve formulas that are a. prescribed by the FASB or AICPA. b. approved by the auditing firm. c. reasonable in light of the circumstances. 3. If ordinary financial reports indicate that a department is showing a loss, then the department should be a. sold or abandoned. b. sold or abandoned, unless it is a loss leader. c. viewed again without regard to inescapable expenses. 4. Sunk costs are a. relevant to most business decisions b. the cost of the next-best alternative c. identidal to fixed costs in most plant operations today. d. irrelevant to most business decisions 1. A "rolling budget" by years is very practical due to the current capabilities of computer technology. 2. Budgeting and cost control procedures should, in general, be unconcerned with the behavioral implications, since personnel are usually employed to conform with budgetary requirements of management. 3. If a plant is at less than 100% capacity, the fixed cost per unit should not be re-calculated, but rather an "Idle plant Expense" should be recognized as a non-production expense of the corporate entity. 4. A fundamental principle of CVP analysis is that sales price per unit must cover variable cost per unit, and we continue to sell a given product so long as this is true, assuming product lines are not cross-competitative. 5. A fundamental point in CVP analysis is that Variable Cost varies in total, but are not fixed per unit, within some "relevant range." 6. There is no clear conflict between the so-called "Accountant's short-run break-even curve," and the so-called "Economist's long-run break-even curve." 7. Comparisons with past data must reveal whether current performance is acceptable to management and investors. 8. Another name for "pro-forma" financial statements would be rejected financial statements. 9. Your instructor is "against" comparative reports that show an "Over(Under) Budget" variance column; he is "for" the column headings, "Actual, Budgeted, Favorable(Unfavorable) Variance." 10. Managerial accounting reports, while adapted to each company, must still be follow generally accepted accounting principles in all internal reports for managers. 1. Depreciation has an impact on cash flow because a. it reduces the tax check. b. it reduces the dividend base. c. it "holds back income assets." d. it is an expense that requires no funds outflow. 2. Costs or expenses allocated to departments should involve formulas that are a. prescribed by the FASB or AICPA. b. approved by the auditing firm. c. reasonable in light of the circumstances. 3. If ordinary financial reports indicate that a department is showing a loss, then the department should be a. sold or abandoned. b. sold or abandoned, unless it is a loss leader. c. viewed again without regard to inescapable expenses. 4. Sunk costs are a. relevant to most business decisions b. the cost of the next-best alternative c. identidal to fixed costs in most plant operations today. d. irrelevant to most business decisions 1. To "foot" is to a. delete b. total c. ignore d. truncate 2. The concept of objectivity is complied with when an accounting transaction occurs that a. involves an arm's length transaction between two independent parties b. is promptly recorded in a fixed amount of dollars. c. allocates revenue or expense items in a rational and/or systematic manner. d. furthers the objectives of the company or entity. 3. The fundamental principle of internal controls is a. segregate ownership, accounting, and janitorial duties. b. reconcile bank accounts monthly. c. segregate accounting, operations, custodianship. d. segregate accounting, ownership, custodianship. 4. If a company actually closed its books each month, then data for annual reports and tax returns would be a. readily available b. available only in the general ledger c. compiled from monthly reports aggregated d. virtually impossible to obtain by reporting deadlines 5. Killem's accounting staff is arguing about the reporting of appreciation and depreciation. The winner would have said a. recognize the former, not the latter. b. recognize the latter, not the former. c. recognize both. d. recognize neither. 6. The cashier's assistant is preparing a bank deposit slip. The date thereon should be a. the date the money is deposited. b. the date the money was collected. c. the date the money was physically recorded in the books. d. the date of the checks received. 7. In bank reconciliations the service charges are usually omitted in the bookkeeping process because of delayed information. Such items appear as a. increases to the bank's figures b. decreases to the book's figures c. increases to the book's figures d. decreases to the bank's figures 8. A statement of cash flows should classify its cash receipts and cash payments into which of the following activities? a. Fund inflows and fund outflows. b. Cash inflows and cash outflows. c. Operating activities, sources, and uses. d. Investing, financing, and operating activities. 9. Which of the following is not to appear on the Statement of Cash Flows? a. dividends declared b. early payment of a current liability c. early retirement of a long-term debt d. buying an automobile on a short-term note 10. What account is credited if a former customer whose account had been written off years ago appeared and paid 1/2 of the account balance with cash being collected and debited? a. Accounts receivable b. Misc. income c. Bad debt recoveries d. Allowance for bad debts 11. Merchandise, returned by a customer, in good condition has a sales price of $4,300. What is the debit, credit entry to record this return? a. Sales R&A, A/Rec or A/Pay b. Sales, Cash c. A/Rec, A/Pay d. Cost of sales, Inventory 12. When costing raw material inventory at the lower of cost or market, what does the term "market" mean? a. net realizable value b. net realizable value less a normal profit margin c. current replacement cost d. discounted next-anticipated replacement cost 13. If a company tried to operate on a LIFO basis physically, it would result in disaster because of a. confusion in the accounting department b. violation of tax laws c. inconsistencies with competition d. deterioration of the inventory on hand. 14. At year-end, Collins Co. conducted a physical inventory. The amount on hand, as costed, was $100,000. On the last day of the year, the following events occurred relevant to goods not included in the count: A supplier shipped goods to Collins FOB destination. The price to Collins was $4,000. The goods were received 3 days later. Collins shipped goods costing $2,000 to a customer FOB destination. A supplier shipped goods to Collins FOB shipping point. The price to Collins was $1,000. The goods were received 1 week later. The year-end inventory should be a. $100,000. b. $102,000. c. $103,000. d. $104,000. 15. An error understating ending inventory will mean that reported net income will a. be overstated b. be understated c. be unchanged d. become indeterminate 16. Which of the following items is properly classified as a current liability? a. A long-term obligation callable by the creditor within 1 year because of a violation of a debt covenant. b. A long-term obligation in default, for which the creditor has waived the right to immediately call the debt. c. Dividends in arrears on preferred stock. d. A short-term obligation intended to be refinanced that the entity has demonstrated an ability to refinance, but has not yet refinanced. 17. At month-end the following information is available for Fowler Co: Sales $25,000 Sales returns and allowances 1,000 Beginning inventory 12,000 Ending inventory 10,000 Purchases 13,000 The gross margin ratio is a. 37.5%. b. 40%. c. 62.5%. d. 68%. 18. First National Bank purchased a capital asset on January 1, 1992 in exchange for $50,000 in cash and a noninterest-bearing note providing for a payment of $50,000 on each January 1 for the next 2 years. The fair values of the note and the capital asset are indeterminable. What should be recorded as the cost of the asset? a. The present value of a $50,000 annuity due for two periods. b. The present value of an ordinary annuity for three periods. c. The present value of an ordinary annuity for two periods. d. The present value of a $50,000 annuity due for three periods. 19. An understatement of net income could be the result of the failure to record a. An accrued expense. b. An accrued liability. c. A purchase of inventory. d. An accrued revenue. 20. If there is a period of inflation and inventory levels (in quantities) are increasing, a company unethically concerned with increasing its reported earnings, hoping to sell the company, would be tempted to use a. FIFO b. LIFO c. NIFO d. COPOUT 21. Which of the following is not a requirement for an item to be a part of the Properties caption on the Balance Sheet? a. not intended for resale b. relatively long lived c. used in the operations of the business d. tangibility 22. In property exchanges, the overall general rule is to recognize the new item (that which is received) at a book vlaue a. equal to the FMV of the item received b. equal to the FMV of the item(s) surrendered c. the higher of (a) or (b) d. the more definatively evident of (a) or (b) 23. Depreciation expense impacts on cash flows because a. it decreases the federal income tax liability b. it avoids "holding back income assets" c. it destroys the dividend base d. the property seller gets the checks for annual depreciation. 24. Depreciation is NOT a. incurred dur to asset usage b. calculated virtually without regard to market values c. a source of funds d. offset by an entry to a contra-asset 25. Normal obsolescence is included in a. Miscellaneous expenses. b. Direct debits to retained earnings. c. Depreciation expense. d. Obsolescence expense. 26. Goodwill can be estimated as a. FMV of net assets purchased less the price paid. b. Price paid less FMV of net assets c. the amount of the direct debit to Retained Earnings for the excess of purchase price over FMV of the net assets. d. the price paid less the book value of net assets purchased. 27. On October 1, 1994, JJJ Inc. borrowed cash, signing a two-year 12% note with interest and principal of $49,800 due then. At the close of their fiscal year, November 30, 1994, the liability for accrued interest should be a. $0 b. $5976 c. $1494 d. $996 28. On January 1, 1993, Fiddy issued 5-year, 10% bonds with a maturity value of $500,000. The bonds were issued to yield 12%, with interest paid annually on January 1 of each year. The following table presents relevant time value of money interest factors: Present value of an ordinary annuity of $1 at 10% for 5 years 3.79079 Present value of an ordinary annuity of $1 at 12% for 5 years 3.60478 Future value of an ordinary annuity of $1 at 10% for 5 years 6.10510 Future value of an ordinary annuity of $1 at 12% for 5 years 6.35285 Present value of $1 at 10% for 5 years .62092 Present value of $1 at 12% for 5 years .56743 Future value of $1 at 10% for 5 years 1.61051 Future value of $1 at 12% for 5 years 1.76234 The amount of proceeds received from the bond issue was a. $463,954. b. $500,000. c. $627,000. d. $1,110,510. 29. Coal Co. has omitted the year-end accrual of bond interest expense for the final quarter of each of the past 4 years, including 1992, the year just ended. The amount omitted each year was $10,000. The correcting entry at December 31, 1992 should be a. Retained earnings $10,000 Interest expense 10,000 Interest payable $20,000 b. Retained earnings $10,000 Interest payable $10,000 c. Retained earnings $40,000 Interest expense $30,000 Interest payable 10,000 d. Interest expense $10,000 Interest payable $10,000 30. A company's balance sheet shows total current liabilities of $200,000, long-term bonds of $250,000, common stock and paid-in capital of $50,000, preferred stock of $20,000, and retained earnings of $80,000. The company's total common equity is a. $70,000. b. $130,000. c. $150,000. d. $400,000. 31. Kaputt, Inc., has total stockholders' equity of $100,000, including retained earnings of $35,000. The cash balance is $19,000. The maximum cash dividend the company can declare is a. $100,000 b. $ 65,000 c. $ 35,000 d. $ 19,000 32. Accounting for corporations involves which of the following considerations? a. Retained earnings may be reduced only by a net operating loss. b. The number of shares of common stock outstanding includes shares authorized, issued, and held by the company. c. The corporation does not differentiate between ownership equity that is contributed and that earned and retained by the company. d. Outstanding stock may be less than issued stock. 33. Holly Co. has two classes of stock: $50 par common stock and $25 par, 8%, cumulative preferred stock. The par value of the preferred stock equals its liquidation value. On December 31, the balance in the common stock account was $300,000, the balance in the preferred stock account was $100,000, and total stockholders' equity was $648,000. Holly did not pay a preferred dividend this year. The book value per share of common stock is a. $50.00 b. $90.00 c. $91.33 d. $108,000. 34. For the current year, Ratt Corporation had 150,000 common shares outstanding on January 1, issued 90,000 shares on April 1 for cash, issued 240,000 shares on July 1 as a stock dividend, and had income applicable to common stock of $1,320,000 for the year ending December 31. Earnings per share of common stock for the year were (rounded to the nearest cent). a. $2.75. b. $2.89. c. $3.03. d. $5.50. 35. Treasury stock a. Should be presented at cost as an addition to stockholders' equity. b. Gains and losses should never be reflected in retained earnings. c. Purchases will cause common stock outstanding to exceed common stock issued. d. Can be shown as a restriction or appropriation of retained earnings to reduce the amount available for dividends. 36. A corporation purchased treasury stock for $18,000 and sold it for $11,000. What amount would be reported from the sale of treasury stock on the statement of cash flows? a. $11,000 b. $18,000 c. $7,000 d. $0 37. Which of the following is an extraordinary item? a. A foreign currency transaction loss because of a major devaluation. b. A loss incurred on the abandonment of equipment formerly used in the business. c. A loss from a flood in an area that experiences flooding approximately once every 3 years. d. A loss from the early extinguishment of long-term debt. 38. Which of the following are not schemes to make a company appear more financially sound or to defraud the company? a. Kiting b. Lapping c. Window dressing d. Franchising 39. Window dressing refers to a. holding the cash receipts book open past year end. b. covering overdrafts with future deposits. c. misfooting the balance sheet. d. posting wanted posters in post offices. 40. If the job cost records are considered a subsidiary ledger, then the Work-in-Process account is a. an expense b. a control account c. a subsidiary account d. a closed account 41. Product costs are not: a. identified with goods purchased or manufactured for resale b. inventoriable costs c. made up of materials, labor, and factory overhead d. the same as period costs 42. Period costs are: a. traced through the inventory accounts b. the same as product costs c. found on the balance sheet d. expenses during the current period 43. Job order costing would not be used by a company engaged in manufacturing: a. cereal b. bridges c. aircraft d. buildings 44. If a production process results in joint products, the cost allocated to each could be most logically based on a. relative sale price b. relative weight c. relative size d. net realizable value 45. If FOH applied does not equal FOH incurred, the variance is a. debited to C/G/S if immaterial. b. alarming c. contributing to mis-costing product d. investigated to determine the cause. 46. Equivalent Units of Production may be defined as a. the whole units transferred out b. the whole units transferred in c. the whole production of the entire factory d. the whole units of production units equal to weighted averaging of partial units processed 47. If a production process results in joint products, the cost allocated to each could be most logically based on a. relative sale price b. relative weight c. relative size d. net realizable value 49. In the opinion of the instructor, "standards" should be a. Applicable, Challenging, & Encouraging b. Attainable, Challenging, & Encouraging c. Challenging, Attainable, & Efficient d. Challenging, Arbitrary, & Efficient 50. If spoilage or shrinkage occurs during processing of a standard product, then the costs of the "disappearing" units are a. allocated to the surviving units. b. debited to cost of goods sold c. rearranged, via debits to FOH d. considered as sales expenses of some sort 51. To make a widget takes 3 gismos and 3 labor hours. The standard cost of a widget is 6$ for gismos and $30 for labor. In this month 5000 widgets were produced, taking 15,200 gismos and 14,800 labor hours, costing $91,000 for gismos and $ $150,000 for labor. The material price variance will be approx. $____________, ____________. a. $ 300 favorable b. $1,200 unfavorable c. $ 900 unfavorable d. $ 900 favorable 57. Using "historcal data" as a standard is a. sometimes unacceptable b. always unacceptable c. always acceptable d. never unacceptable 58. Performance measures are often reported by accounting departments; which of the following is a monetary measure (as versus a non-monetary mearsure): a. ROI b. Aesthetics c. Durability d. quality variables 59. Differential Costs are most similar to a. sunk costs b. responsibility costs c. marginal costs d. opportunity costs 60. Responsibility accounting is a managerial cost system that holds managers accountable for a. costs of their unit or branch b. costs allocated to their unit or branch c. costs incurred with the managers knowledge d. costs controllable by the accountable party 61. A company had net sales of $876,000, beginning Accounts Receivable of $80,000 and ending Accounts Receivable of $100,000. What is the days' sales in average receivables ratio? a. 41.7 days b. 246.6 days c. 37.5 days d. 33.3 days 62. The proportion of a company's assets financed by debt is measured by the: a. current ratio b. debt yield ratio c. times interest earned ratio d. debt ratio 63. Working capital is: a. current assets minus current liabilities b. assets minus liabilities c. net assets d. current assets plus current liabilities 64. Which of the following will cause a decrease in the quick ratio? a. A credit sale. b. The issuance of a short-term note to pay a supplier. c. The receipt of a cash dividend. d. An increase in short-term marketable securities. 65. A firm's current ratio is increasing at the same time that its quick ratio is decreasing. This could be a warning that the firm is a. Liquidating its marketable securities. b. Having trouble collecting its receivables. c. Tightening its credit policies. d. Carrying excessive inventory. 66. Which of the following transactions will increase both working capital and the current ratio? a. The payment of a previously declared cash dividend. b. Writing off an uncollectible account receivable against the balance in the allowance account. c. Borrowing cash on a 6-month note. d. Converting a short-term note payable to a long-term note. 67. During 1991, Magenta Co. purchased $2,400,000 of inventory. Purchase discounts amounted to $40,000. Beginning and ending inventories were $320,000 and $480,000, respectively. What was Magenta's inventory turnover for 1991? a. 4.5 times. b. 6.0 times. c. 5.0 times. d. 5.5 times. 68. A common measurement of a business's ability to meet short-term obligations is: a. net assets b. rate of return on sales c. working capital d. price/earnings ratio 69. Which of the following current assets is omitted from the acid- test ratio? a. Cash b. Accounts Receivable c. Short-term Investments d. Inventory 70. A company expects to sell 13 lots in a subdivision for $35,000 each and 7 lots at $55,000 each. Land costs are $125,000 and developmental costs are estimated to become approximately $275,000. During the first year of operation two lots were sold: $35,000 and $55,000. The gross profit(loss) for the year would be reported as approximately a. $90,000 b. ($285,000) c. $50,000 d. $47,000 71. The calculation of the income recognized in the first year of a four-year construction contract (using the percentage of completion accounting system) is generally based on the ratio of a. total estimated costs to estimated costs to complete b. total estimated costs to actual costs incurred to date c. total costs incurred to total anticipated costs d. total costs incurred to total costs remaining 72. The only type of cash inflows/outflows that remain truly significant in a long run are a. earnings per share b. after-tax cash flows c. income inflows d. inflows of other peoples' money 73. The first step in budgeting is to forecast a. cash inflows b. cash outflows c. minimum cash balances required d. locate potential overdraft points 74. Budgets for commercial enterprises require forecasting a. Percentage of sales collected in subsequent months b. Percentage of purchases having deferred payment schedules c. Sources of borrowings d. Distributions to owners 75. Flexible budgeting refers to a system of budgeting that relates a. actual production to desired production levels b. actual production levels to potential production levels c. fixed costs to fixed costs per unit actually produced d. budgets for actual production levels to average production 76. Personal budgeting should deal with a. Net pay forecasts, fixed cash outflows, variable cash outflows b. Gross pay forecasts, fixed expenses, variable expenses only c. Net pay forecasts, but not sources of borrowings d. Controlling current year inflows and outflows, excluding retirement of prior years' liabilities 77. If a fund is a perpetuity, it a. produces no income. b. is to produce income forever. c. is to become zero after a certain number of withdrawals. d. is never to change in ownership. 78. Discounting cash flows is a technique essential in so-called "scientific" capital budgeting, given a. inept forecasters b. creditable forecasts and reasonable discount rates c. a crystal ball and greedy investors d. limited time frames for decision making 79. The future value of $1 is given by the formula a. PV * (1+i)^n b. FV * (1+1)^-n c. FV * (1+i)^n d. PV * (1+i)^-n 80. The right to collect $1M is 15 years, assuming money can earn 8% converted quarterly is a. $1M * (1.08)^15 b. $1M * (1.02)^-15 c. $1M * (1.04)^-30 d. $1M * (1.02)^-60 A = TRUE B = FALSE 91. The cardinal rule of accounting is to anticipate no losses but allow for all reasonable gains. 92. The accounting cycle is the sequence of procedures used in the process of going formally from business documents to the post-closing trial balance. 93. The books need not be closed for financial statements to be prepared. 94. When a company discounts its own note, a contingent liability is created. 95. Cost, expense and loss are interchangable terms. 96. Expenses may be defined as expired costs not beneficial to the future revenue producing activities of the entity. 97. FIT Payable is likely to be the last AJE each year. 100. Truth, fairness, and justice are accounting principles. 4. When no outside market exists and a division has excess capacity, any price over outlay costs will encourage production. 5. The assets turnover ratio is equal to net income divided by average total assets. 10. Opportunity cost is the cost of a past event, such cost being non-recoverable. 45. A financial statement which summarizes the owners' equity position of a company is the a. income statement. b. statement of changes in cash c. capital statement of partners d. balance sheet An S Corporation generally pays income taxes is basically designed for large businesses to use is taxed very much like a partnership has unlimited liability characteristics Partnerships File income tax forms, but pay no income taxes File income tax forms, and pay income taxes Do not file income tax forms, and pay no income taxes Do not file income tax forms, but pay income taxes If there is no agreement, then partners must share profits in their capital ratios as orally agreed upon in accord with state law, i.e., the government gets a partner's share according to tax laws equally In the Statement of Cash Flows, the buying of depreciable equipment is considered a cash inflow from investment activities a cash outflow due to investment activities a cash outflow due to financing activities a cash inflow due to operating activities If dividends were declared, but not paid, then dividends would not appear on the St C/F. dividends would appear as financing items on the St C/F. dividends would appear as reverse investments on the Retained Earnings Statement dividends would not appear on either the St C/F, or on the Retained Earnings Sta tement. Which of the following is not a characteristic of partnerships? Limited Liability Difficulty of transfers of ownership Mutual agreement Profit motives Goodwill = the FMV of assets boughts less their book values. the book values of net assets bought less their FMVs. the price paid for a going business less the fair market values of the net assets the price paid for a going business less the FMV of the fixed assets. Intangible assets are normally amortized over 40 years a reasonable period, not to exceed 5 years. a reasonable period, not to exceed 40 years. 60 months As compared to FIFO or other traditional methods, LIFO inventory methods, assumi ng deflation, would make reported profits higher. lower. unchanged. indeterminate. Prior periods adjustments must be reported in the income statement. the statement of cash flows. the cash receipts and disbursements statement. the statement of financial position. Which of the following is unacceptable accounting? Leaving obsolete inventory in the records at cost, since losses can only be recognized at a sales point Charging the cost of advertising run late in this year to a prepaid account, since the benefits clearly will accrue to the ensuing year Crediting sales of the company cafeteria (at cost) to Sales. Allowing a fire loss on inventory to be reflected in cost of goods sold automati cally, since the ending inventory will be less anyway. The SCF should disclose the following: proceeds of sales of properties causes of the changes in working capital or cash the amount of the net change in working capital or cash the purchase of treasury stock for cash The Unrealized Losses on short-term investments account can be offset by subsequ ent Unrealized Gains, but the latter cannot exceed the former. the latter may, over time, exceed the former. the former must be less than the latter. the former cannot be calculated and must be ignored. Which of the following is not a step in preparing a SCF? deriving the needed answer obtaining the amount of dividends declared reviewing property sales data analyzing changes in non-current accounts Shifting from the completed contract method to the percentage of completion meth od is considered to be a change in accounting principle a change in accounting principal an increase in corporate principal a weakness in accountant's principles If an understatement of accrued payroll occurred in the 12/31/91 financials, but the 12/31/92 liabilities correctly stated the accrual, the account that is inco rrect in the financial statements of 12/31/92 is: Retained earnings Salaries expense Accrued wages Cash Assuming evidence of consistency in a company, shifting from DDB depreciation me thods to SL methods, the change is reported as a cumulative-effect changes in the income statement an adjustment to retained earnings an extraordinary item in the income statement a change in accounting principle Revision lives of assets as time passes is reported as an error in prior periods a change in accounting principle a change in estimate requiring no disclosure an extraordinary item on the income statement Depreciation has an impact on cash flow because it reduces the tax check. it reduces the dividend base. it "holds back income assets." it is an expense that requires no funds outflow. Which of the following should be reflected net of applicable income taxes in the statement of stockholders' equity as an adjustment of the opening balance of re tained earnings? Correction of an error in previously issued financial statements. Cumulative effect of a change in depreciation methods. Loss on disposal of a segment of a business. Extraordinary item. Which of the following is not a current asset? Petty cash. Marketable securities. CSV of life insurance. Office supplies inventory. Worksheets at year end should have accounts sequenced in Alphabetical order. Account number order. Financial statement order. Magnitude order. Auditing, as a specialized field in CPA work, is essentially proving the books are right. reviewing financial reports, and support, to see that the reports are fairly pre sented investigating frauds work required by the government to verify tax return data In general terms, independent public auditors certify financial statements. certify bookkeeping procedures. verify financial statement balances. keep books for clients. If the trial balance is out-of-balance, one should retrace the accounting cycle, from start to end. retrace steps, reversing order. continue on, assuming difference will show up. always plug Miscellaneous expense. Which of the following is the fundamental list of the minimum data input in a co mputerized accounting system name, date, amount, reference number, account code name, and account code name, date, account code description, date, amount, account code Deposit slips should be dated the date of the reconciliation recording, i.e., the date the bookkeeping is performed. deposit at the bank collection, i.e., the date to be "booked" as a financial transaction of the comp any. The fundamental objective of internal controls is to ensure the reliability of accounting data and reports prohibit theft increase operational efficiency increase administrative paperwork The fundamental principle of internal controls is segregate ownership, accounting, and janitorial duties. reconcile bank accounts monthly. segregate accounting, operations, custodianship. segregate accounting, ownership, custodianship. An error understating ending inventory will mean that reported net income will be overstated be understated be unchanged become indeterminate A count of the petty cash fund at FYE is $98, whereas the general ledger account shows $200. No vouchers can be located and the fund is not reimbursed before t he close of the year. An entry is needed that will ________ for $____. credit Misc. Exp.; $102 debit Misc. Exp.; $98 credit Petty Cash; $102 credit Cash; $102 Which of the following is NOT an acceptable procedure for a CPA in the USA to us e in estimating the possible uncollectible accounts receivable? conferences with the credit manager statistical/financial reports of prior periods asking a good friend versed in the industry, about this particular company and i ts customers data about similar companies and their experiences If you were bookkeeping for a small unincorporated grocery store and found a che ck written to a church for $123.78, you would be very likely to debit contributions withdrawals - non-deductible (schooling) miscellaneous expenses withdrawals - deductibles (personal tax return) Which of the following is illegal? tax avoidance delaying billings at FYE paying accounts payable at FYE, allowing deductibility tax evasion The tax law does not follow GAAP because GAAP is too technical the IRS has different objectives the tax laws are unfair congress does not have any CPA representations If a trial balance includes Merchandise Inventory, then the account must be adj usted so that the balance sheet columns of a worksheet contain the cost of goods sold the cost of merchandise on hand at the period end purchases amount the beginning inventory figure If an item is shipped FOB shipping point, then the .________owns the goods while they are in transit. shipper buyer common carrier government Subsidiary ledger tabulation runs would disclose details underlying the related general ledger accounts. comparative financial data from prior periods. statistical analyses for investment decisions. projections of future operations' results. If a CPA is trying to make a decision on an accounting issue, the CPA should con sider conservatism as an overriding theory to be avoided. to be embraced. to be used if GAAP is unclear. which encourages pessimism. CPA stands for Cleaning, pressing, alterations Cotton Picking Alabamian Certified Professional Auditor Certificate in Promoting Atheletics The going concern concept, which concerns ________ means that assets are stated at cost as a relevant amount. the business will not last forever. the business is going to make a profit. the business cannot make a current loss. the owners of the business are going to manage the concern. The list of generally accepted accounting principles can be found at the FASB headquarters. recited by all CPAs. are restricted to the textbooks used in college. are not codified. Which of the following are balance sheet words, i.e., words that would not appea r on the income statement? receivable payable accrued unearned all of the above are balance sheet words Liabilities are to be recognized in accrual accounting, in the period of payment collection incurrence receipt of the purchase invoice finding time to record the purchase invoice The balance sheet is prepared under the assumption of Resources = Sources of Resources Assets = Equities the going concern. a generally stable monetary unit of relevance. Adjusting entries are necessary in order to measure properly the defined period's income. bring asset accounts to correct balances. bring liability accounts to correct balances. bring the books up to date. Materiality issues depend on only the dollars involved dollars and risk factors dollars, risks, and relative importance judgments as to items in "c" above. A CPA that is an independent auditor discovers that the financial statements' di sclosures were inadequate in a recently issued "presents fairly" opinion report. The best course of action is to recall all the financial statements inform the client immediately call his lawyer call his professional insurance carrier The term "purchases" in either an account title or a journal title, means the re lated items are items we have already sold merchandise non-merchandise included in the accounts payable balance at FYE Operating expenses are typically divided into selling expenses and general expenses cost of goods sold and selling expenses general expenses and miscellaneous expenses they are not divided! Underlying every "voucher"(payable) recorded should be a receiving report, purchase requisition, purchase order review of the supporting documents approval for recording coding of the accounts to debit, by competent personnel Petty Cash is debited or credited when the fund is ... and when the amount is .. established, changed established, spent ended, on hand established, unknown In what order would a credit manager be likely to prefer the information, in the weekly or monthly report of customers? reference sequence (account number order) index sequence, (e.g., amount of debt x time overdue x interest rate) random sequence reference sequence (alphabetical) A major advantage of the corporate form is the likelihood of raising large amounts of capital. limited liability of owners. unlimited legal life of the entity. ease of transfer of ownership interests. International accounting problems exists because of cultural differences differences in complexity of business GAAP being non-standard inter-country Exchange rate theories being unresolved Which of the following is not a characteristics of a "near perfect" tax shelter? The investment... produces a positive cash throw off virtually each year. calculations show a negative impact on taxable income. the residual value of the property is positive, after tax. the results of a., b. and c. above are acceptable to the IRS. One objective of a stock split is to decrease the FMV per share increase the FMV per share have smaller stock certificates reduce the number of shareholders EPS should normally be _____________ than DPS lower higher equal to more marketable A PE ratio of 100 would generally indicate a stable stock a sound investment for very conservative investors a company without a current net income an unstable company a highly speculative investment Preferred stock is "preferred" in part, because it gets a higher DPS than common has priority over bonds in liquidations gets no priority over common stocks in liquidations is printed on larger certificates none of the above Participating preferred stock is usually _____ ____ the FMV of non-participating preferred stock, other things equal. more than less than equal to (indeterminate question) If securities cannot be identified as to their cost, then FIFO is required LIFO is required average cost is required FMV is used as cost, reducing the "basis" on the books If there is a credit balance in Retained Earnings of $10,000 and a debit balance in Cash of $18,000, then dividends are limited to $18,000 inclusive. dividends up to $10,000 can be declared. only $10,000 of cash dividends are legal. dividends are illegal. Appropriated Retained Earnings implies a restriction of the dividend base a loss a detrimental uncertainty a sinking fund exists Which of the following is impossible re common stocks? FMV = Book Value Book Value = Par Value FMV = Par Value Book Value = FMV = Par Value When a business incorporates, the new corporation issues common stock of $1 par and then reacquires the stock at $2. This means there is, among other things, a debit to Treasury stock for $2 per share Common stock for $1 per share Cash for $2 per share Donated capital for $1 per share Disposing of treasury stock at a price above cost would create: taxable income credits to retained earnings debits to retained earnings appropriated retained earnings The spread between the cost of Treasury Stock and the selling price of same the latter being higher should be credited to Paid-in (Contributed) capital. Capital stock. Retained earnings. Other income. Extraordinary items are financial events that are non-recurrent abnormal and non-recurring abnormal and not expected to be non-recurring abnormal and not expected to recur Period costs are inventoriable. non-inventoriable. capitalized into properties. revenue increases. Managerial accounting reports normally compare results with competition plans. prior years industry guidelines. Company X has a credit balance in "Allowance for FMV declines" relative to marke table equity securities held as current assets. The offsetting accounting will appear on the balance sheet. the income statement the retained earnings statement the tax return An example of a product where process cost accounting would be most advisable is paints chairs custom draperies automobiles If management can convince the public that the company should be "worth" a highe r PE ratio, but EPS declines, the common stock's FMV will rise fall stay constant be suspended from trading The spread (high-low) over the last year, as quoted in daily WSJ data, _______ a guide as the the _______ high-lows of the particular stock. is, future is not, future is not, past is, technicrat's When manufacturing volume increases, strictly variable cost tend to remain constant in total increase, per unit. remain constant per unit. decrease, per unit. The three elements of manufacturing costs are Larry, Moe & Curly DL, DM, and Fixed Overhead DL, DM, and Factroy Overhead Indirects costs, Direct Costs, and Period Costs Manufacturing plants do not have expenses. True False, since they build assets. False, since they accrue expenses. True, assuming sales overhead is considered a plant cost. Which of the following is not in the Balance Sheet of a manufacturing company? Merchandise Raw Materials Factory Supplies Work in process The FOH rates are ....... based on direct ...... generally, labor dollars usually, labor hours always, labor dollars never, materials dollars Which of the following criteria must be satisfied in order for a cost to be list ed on the Cost of Goods Manufactured Statement? the item must be approved by the VP of Production. the salesmen are not to give production personnel clues as to what to produce an d how much to produce c the cost must be incurred inside a plant building rather than being costs all ocated to the plant by accountants. the cost is identifiable with product, rather than with periods Which of the following is not an element of manufacturing costs? factory overhead direct materials direct labor product design research staff Plants do not incur expenses; they build assets. An exception to this would be vacation pay for factory personnel indirect labor down-time considered normal idle plant capacity costs Which of the following is not an asset at FYE? work in process finished goods cost of factory supplies cost of goods manufactured In a manufacturing company, merchandise inventory is replaced in the balance she et by Factory goods on hand Raw materials Finished Goods Work in process It is impossible for a company to have a job order cost system and a process cos t system in the same plant. True False Nonsense Depends on interpretation; it's O.K. in two areas, but impractical for only one department. In theory, the job order cost records are following the physical flow of goods. destroyed at the plant door. filed in the plant safe. irrelevant for managerial use, as all orders are unique. If time tickets for jobs do not match clock card hours/costs then the product is costing too much. the job cost records may be misleading. the books will be out of balance at FYE. all job costs records are incorrect. If FOH applied does not equal FOH incurred, the variance is debited to C/G/S if immaterial. alarming contributing to mis-costing product investigated to determine the cause. If the job cost records are considered a subsidiary ledger, then the Work-in-Pro cess account is an expense a control account a subsidiary account a closed account Conversion costs, contrasted to prime costs, are direct labor, direct materials, and factory overhead factory overhead, and direct labor direct materials and direct labor factory overhead and direct materials Equivalent Units of Production may be defined as the whole units transferred out the whole units transferred in the whole production of the entire factory the whole units of production units equal to weighted averaging of partial units processed If a production process results in joint products, the cost allocated to each co uld be most logically based on relative sale price relative weight relative size net realizable value By-products are normally costed at relative sale price relative weight relative size net realizable value If spoilage or shrinkage occurs during processing of a standard product, then th e costs of the "disappearing" units are allocated to the surviving units. debited to cost of goods sold rearranged, via debits to FOH considered as sales expenses of some sort On March 1 1991 Cammuse Company purchased a trace of land and a factory site i ssuing 400,000 shares of $1-par common stock in exchange for the land whic h has a FMV of $450,000. An existing building on the property was razed and c onstruction was begun on new factory. The cost of razing the old building was $50,000. Thus the debit for the cost of the land and the credit to Common Sto ck are: $350,000 and $400,000 450,000 and 450,000 400,000 and 450,000 450,000 and 400,000 The time value of money is an important part of Bond investment analyses Accounting for return on investment Net present value analysis All capital budgeting methods In investment decisions, the total amount of money that could be invested become s moot the principal principal secondary to ROI or IRR results on the investment at hand the variable which makes comparability fuzzy Opportunity cost is unavailable in most business decisions the cost of the next-best alternative equal to the residual value of a plant asset irrelevant to most business decisions A bond is expected to be issued for $105,000 and mature in five years. Amortiz ation is assumed to be straight line (even for tax purposes) and this bond pay s an after tax interest income of $3,000 at the end of each six months. The af ter-tax return demanded by an investor is 6% on a compounded semi-annually bas is. What is the present value of the bond to the investor? The PV of the after-tax cash flows from the bond plusthe sales price. The PV of the before-tax cash flows from the bond. The PV of the after-tax cash inflows less the PV of the after-tax cash outflows involving the bond deal. $105,000. The "plus accrued interest" concept assures that the bond holder at interest time gets the full check the bond holder at interest time gets his or her fair share the bond holder at interest time gets no interest income the bond holder at interim times gets no interest income To find the future value of an annuity, the table factor involved would be: less than n n greater than n If a bond is issued at a premium, the effective rate of interest incurred is less than the stated rate. the stated rate more than the stated rate the prime rate If a fund is a perpetuity, it produces no income. is to produce income forever. is to become zero after a certain number of withdrawals. is never to change in ownership. To find the present value of a lump sum due in the future, the table factors wou ld be less than 1 1 greater than 1 n Depletion is the decline in FMV of natural resources held. the cost of utility extracted from properties. a cost allocation method in accounting. the cost of natural resources obtained for inventory or sales efforts. Depletion, for tax purposes, may exceed cost depletion. cannot exceed cost depletion. is not deductible. must exceed cost depletion. Journal entries are chronological. become instructions for posting. are based on business documents. all of the above. A book of accounts is a journal. trial balance. diary. financial statement. Debit means left. right. plus. minus. Assets are on the _____ side of the balance sheet, therefore debit entries are _ ______ for assets. debit, - credit, + debit, + credit, - Liabilities are on the ______ side of the balance sheet, therefore debit entries are _______ for liabilities. debit, - credit, + debit, + credit, - When a company discounts its own note, a contingent liability is created. a real liability is created. no liability is created. another entity incurres a liability. A change in the estimate of the useful life of a fixed asset is needed in Compan y X. In general the rule is cost over the remaining life. remaining book value over remaining life. cost over the corrected original life. remaining book value over the corrected original life. Reversing entries are dated the last day of the closing year. the first day of the ensuing year. the date their need is discovered. the last day of the ensuing year. W-Elementary Inc. extracts a mineral from its land resources and sells it under a tax law allowing a 5% depletion allowance. The land cost was $500,000 and the scrap value of the land will be $50,000 after mining. The estimated tons of mi nerals was 100 million 60 million of which was remaining after one year. In Y ear #2 19 million tons were obtained and sold for $1,000,000 and 31 mil lion were estimated to be remaining. The depletion for financial statements for Year #2 should be $0 $1,380 $9,660 $350,000 Which of the following is not a recognized method of reviewing for date to make an adjustment to the Allowance for Uncollectibles? Reviewing industry statistics. Reviewing company history. Aged analyses of accounts. Specific reviews of customers name by name. Depletion of tax returns must not exceed cost depletion. must exceed cost depletion. is not deductible. may exceed cost depletion. Depreciation is the decline in FMV due to wear and tear. the cost of utility extracted from properties. a cost allocation method in accounting. a source of cash. The posting reference (small columns in a journal indicates the total posted. the number of the journal entry. the account to which an amount is posted. the data of the posting. What account is debited if a $1000 word processing system is purchased? Office supplies. Cash Accounts payable Machinery and equipment What account is credited if an old customer whose account has been previously wr itten off appeared and paid the account balance? Cash Accounts receivable. Accounts payable. Allowance for uncollectibles. Earnings per share is based on calculations excluding preferred stock dividend allocations. excluding federal income taxes. excluding weighted averages of shares outstanding. including preferred stock dividend allocations. Today is Dec.31 x3. On Jan. 16 x1 XYZ Inc. pays $5,000 for 4,500 shares of XYZ Inc. and debited Marketable Securities. At Dec. 31 x1,the stock was down to $4,0 00 so they credited Loss on Marketable Securities and debited Marketable Securi ties. The error was not discovered until Dec. 31 x2 at which time they debited Gain on market recoveries and credited Retained Earnings. These facts came to li ght today. What was need is among other entries is: Debit Cred it Treasury Stock ; Retained Earnings Treasury Stock ; Marketable Securities Retained Earn. ; Treasury Stock Retained Earn. ; Cash Disposing of treasury stock at a price below cost would create tax deductible losses credits to retained earnings debits to retained earnings appropriated retained earnings If retained earnings is appropriated for whatever contingency and he contingency materializes then there should be: Debit Credit Ret Earn ; Liability Liability ; Ret Earn Expense ; App Ret Earn App Ret Earn ; Ret Earn On Jan. 1 19x1 Poe Constr. Co. Inc. changed to the percent age-of-completion met hod for construction contracts financial reporting. Such a change was O.K. by the company auditors. If this method has been used in the past an additional $18 0,000 of income would have been recognized in prior years. Assuming a tax rate of 40% for all years the cumulative effect of this accounting change should be reported in the 19x1 Retained earnings statement as a $180,000 credit adjustment to the beginning bal ance. Income statement as a $180,000 credit. Retained earnings statement as a $108,000 credit adjustment to the beginning bal ance. Income statement as a $108,000 credit. If the income tax expense as reported on the financial statements exceeds the ac tual tax due on the federal income tax return, the difference is a credit to deferred income taxes. a debit to deferred income taxes. a credit to deferred income taxes, but only if the difference is subject to "rev ersal." a credit to prepaid federal income taxes. The name of the agreement in a bond negotiation is a(an) ______________ , wherea s the bond, if dependent on the general credit of the company, is known as a(an) _________. indenture, debenture debenture, indenture indenture, endenture denture, tourquide In general the effective interest rate method is used in accounting for bonds pa yable premium on discount but the straight line method is acceptable if is creat ed only at immaterial difference. true false nonsense indeterminate In bank reconciliations, the service charges are usually omitted in the bookkeep ting process because of delays in information; thus, such items appear as increases to the bank's figure decreases to the bank's figure increases to the book's figure decreases to the book's figure The terms 3/10, n/30 would mean a 10% discount will be netted out in 30 days for 3 items. a 3% discount is given if the invoice is paid within 30 days, but payment is ne eded in 10 days. a 3% discount is available for 10 days, but the invoice If the total of the cash register tape for a day reads $345.78 as the collection s in a locality having a 6.5% sales tax rate, then the sales credit for the day should be $345.78 323.30 324.68 368.26 FASB stands for Financial Accountants' State Board (exam) Financing Actuarial Society of Brittian Financial Accounting Standards Board Finishing Accounting & Statistics Books For purposes of preparing financial statements, the act of dividing the life of a business into equal time periods is done so that the end of the FY is always at the end of the natural business y ear is done so that the end of the FY is always at the end of the calendar year is called interim reporting for financials prepared in-between annual FYEs, unde r the periodicity concept. never on a FY for tax purposes. Which of the following will be classified as a Current Asset on the Balance Shee t of a company with a 15-month operating cycle? The portion of Equipment that will last over 15-months. Salaries payable Account receivable, collectible in 13 months. A Note receivable due in 24 months. Appreciation is not recognized in the accounts because no benefits are possible. no transactions with outsiders has occurred. no objectively measurable benefits have occurred. no accountant knows what to credit. In general, financial statements report assets at management's estimates of the present value of the expected future benefits to b e generated by assets. current appraisal values. historical cost. fair market values (FMV). GAAP is _________ required in internal reporting in a private, locally owned, cl osely held corporation. always sometimes never rarely Notes payable of $120,000 are due in 65 days and bear 10% interest. If the bala nce sheet shows $1,453.67 in the Accrued Interest Payable account, then no AJE is needed. an AJE is needed that will debit Accured Intr Payable an AJE is needed that will credit Accured Intr Payable an AJE is needed that will credit Notes Payable If "Purchases" is recorded "net" [of discounts expected to be taken by you], the n "Purchases Discounts" appears on the Balance Sheet. Purchases will be lower than recorded data indicates. "Purchases Discounts Lost" will have a debit balance and be on the Income Statem ent if a discount is missed. Purchases will understated in the financial statements. Customer BB buys $1,000 on 3/1 on terms 2/10, n/30. They send us a check the ne xt morning for $980; therefore, after we post their check, BB will owe us $1,000 $ 980 $ 0 $ 20 In recording transactions that involve the purchase and resale of merchandise wh en a periodic inventory system is elected, the sales price of merchandise returned by customers is credited to Sales Return s & Allowances the purchase cost of merchandise returned to a supplier is debited to Purchases Returns & Allowances the amount of any sales discounts taken by customers is debited to a Sales Disco unt account. The amount of any purchases discounts is debited to a Purchases Discounts accoun t. SEC stands for [in context of this course] South Eastern Conference Southern Electric Corporation Securities & Exchange Commission Secret Elected Corrections Normal obsolescence is included in Miscellaneous expenses. Direct debits to retained earnings. Depreciation expense. Obsolescence expense. Before a company can adopt LIFO, it must state its prior year's ending inventory at FMV. LCM. Cost. Appraisal values. Factoring refers to selling accounts payable. mathematical calculation for notes. selling accounts receivable. depletion charges. An intangible that is unidentifiable and internally generated cannot be capitali zed. Which intangibles can be? unidentifiable, externally generated identifiable, externally generated identificable, internally generated unidentificable, but obtained by gift Depreciation is an allocation of cost over time a decline in FMV the opposite of appreciation expense created by usefulness The replacement method of "depreciation" is useful since it presents a fair balance sheet at all points is super-simple has clear tax advantages is consistent with LIFO inventory theories In exchanges, the broad general rule is to record the new item at the item's FMV. the FMV of the item surrendered. the lower of (a) or (b), other things equal. the most supportable of (a) or (b), other things equal. Interest during construction should be capitalized when funds are borrowed to build the asset. the funds used in building are part of the funds a company borrows. the constructed item is for the company's own use. interest expense is not zero. Ideally, depreciation expense should be based on time. engineering estimates. units of output estimates. declines in fair market values. The cost of leasehold improvements should be depreciated over the life of the le ase or the life of the asset, 20. Internal accounting procedures and reporting are not required to be in accordance with GAAP, as prescribed by the FASB. 21. Behaviorial aspects of accounting and budgetary controls are very relevant considerations for managerial accountants that must provide decision-oriented information and reports. 1. The general overally objective of financial accounting could be stated as a. to create records of business transactions. b. to create understanding of a business/financial entity. c. to dictate proper actions to managers, based on truth. d. to discover scientific truth 2. If there is no written agreement then partners must share profits a. in their capital ratios b. equally c. in accord with state law, i.e., the government gets a partner's share d. in accord with tax laws at the time 3. If there is a $45,000 profit and A and B share profits in the ratio of 2/3 and 1/3 then a. 3 of five parts goes to A b. A and B each get 1/2 times $45,000 c. three parts are split up: 1 to A, 2 to B d. A gets nothing 4. Partners need not share profits and losses in ratios that are devised to maintain capital balances in some given ratio. a. True b. False c. It depends. 5. An S Corporation a. pays no income taxes b. is basically designed for small businesses to use c. is taxed very much like a partnership d. suffers double taxation, in effect, when dividends are paid 6. An individual can reduce the IRS's portion of profit by a. using a proprietorship for business operations. b. incorporating the business activities c. using tax advisors d. using family members in a business partnership 7. Partners A, B, and C have $10, $20, and $30 in their capital accounts at year end, profit is $60. Their respective shares, assuming no agreement was stated, are a. $10,$20,$30 b. 10%,20%,30% c. $0,$0,$0 d. $20,$20,$20 8. A decrease is a partner's equity account is caused by a. losses. b. profits. c. withdrawals by other partners (assume a cash-rich company) d. death of another partner 9. Partnership balance sheets should disclose a. each partner's capital. b. only the total of the partners' capital. c. the capital stock outstanding. d. the profit amount that was last year's distribution 21. Assuming Department BB begain with 600 units 2/3 completed and transferred out 900 units, and ended the month with 1000 units 5% completed, the EPU for the month, using FIFO, would be a. 200+900+50 units b. 400+900+1000 units c. 200+900+50 units d. 200+700+950 units 29. The spread between the cost of Treasury Stock and the selling price of same, the latter being higher, should be credited to a. Contributed capital. b. Capital stock. c. Retained earnings. d. Other income. 12. If an understatement of accrued payroll occurred in the 12/31/90 financials, but the 12/31/91 liability is correctly stated, then an account that is incorrect in the financial statement is a. Retained earnings b. Salaries expense c. Accrued wages d. Cash 13. Assuming evidence of consistency, if a company is shifting from DDB depreciation methods to SL methods, then the change is reported as a. a cumulative-effect changes in the income statement b. an adjustment to retained earnings c. an extraordinary item in the income statement d. a change in accounting principle 17. Which of the following should be reflected, net of applicable income taxes, in the statement of stockholders' equity as an adjust ment of the opening balance in retained earnings? a. Correction of an error in previously issued financial statements. b. Cumulative effect of a change in depreciation methods. c. Loss on disposal of a segment of a business. d. Extraordinary item. 18. If a CPA that is an independent auditor discovers that the financial statement disclosures were inadequae to support the "fairly presented" opinion recently issued, then the best course of action is to a. recall all the financial statements b. inform the client immediately c. call his lawyer d. call his professional insurance carrier