which I know you have. Here are the questions: 1. It is an objective of the statement of cash flows to
a. disclose changes during the period in all asset and all equity accounts.
b. disclose the change in working capital during the period.
c. provide information about the operating, investing, and financing activities of an entity
during a period.
d. none of these.
2. Which of the following is NOT an objective of financial reporting?
a. To provide information about economic resources, the claims to those resources, and the
changes in them.
b. To provide information that is helpful to investors and creditors and other users in assessing the
amounts, timing, and uncertainty of future cash flows.
c. To provide information that is useful to those making investment and credit decisions.
d. All of these are objectives of financial reporting.
3. Which table would you use to determine how much you would need to have deposited three years
ago at 10% compounded annually in order to have $1,000 today?
a. Future value of 1 or present value of 1
b. Future value of an annuity due of 1
c. Future value of an ordinary annuity of 1
d. Present value of an ordinary annuity of 1
4. An accounting record into which the essential facts and figures in connection with all transactions
are initially recorded is called the
a. ledger.
b. account.
c. trial balance.
d. none of these.
5. A statement of cash flows typically would NOT disclose the effects of
a. capital stock issued at an amount greater than par value.
b. stock dividends declared.
c. cash dividends paid.
d. a purchase and immediate retirement of treasury stock.
6. Which of the following is a current asset?
a. Cash surrender value of a life insurance policy of which the company is the beneficiary.
b. Investment in equity securities for the purpose of controlling the issuing company.
c. Cash designated for the purchase of tangible fixed assets.
d. Trade installment receivables normally collectible in 18 months.
7. Classification as an extraordinary item on the income statement would be appropriate for the
a. gain or loss on disposal of a component of the business.
b. substantial write-off of obsolete inventories.
c. loss from a strike.
d. none of these.
8. When work to be done and costs to be incurred on a long-term contract can be estimated
dependably, which of the following methods of revenue recognition is preferable?
a. Installment-sales method
b. Percentage-of-completion method
c. Completed-contract method
d. None of these
9. A trial balance
a. proves that debits and credits are equal in the ledger.
b. supplies a listing of open accounts and their balances that are used in preparing financial
statements.
c. is normally prepared three times in the accounting cycle.
d. all of these.
10. How should earned but unbilled revenues at the balance sheet date on a long-term construction
contract be disclosed if the percentage-of- completion method of revenue recognition is used?
a. As construction in process in the current asset section of the balance sheet.
b. As construction in process in the noncurrent asset section of the balance sheet.
c. As a receivable in the noncurrent asset section of the balance sheet.
d. In a note to the financial statements until the customer is formally billed for the portion of work
completed.
11. Which of the following is a required disclosure in the income statement when reporting a change in
accounting principle?
a. A per share amount for the cumulative effect of the change.
b. The cumulative effect on prior years net of tax.
c. The cumulative effect should be disclosed immediately after extraordinary items.
d. All of these.
12. Which of the following items will NOT appear in the retained earnings statement?
a. Net loss
b. Prior period adjustment
c. Change in accounting principle, net of taxes
d. Dividends
13. Gross billings for merchandise sold by Otto Company to its customers last year amounted to
$10,720,000; sales returns and allowances were $270,000, sales discounts were $175,000, and
freight-out was $140,000. Net sales last year for Otto Company were
a. $10,720,000.
b. $10,450,000.
c. $10,275,000.
d. $10,135,000.
Solution:-
Particulars
Gross Sales
Less:- Returns and allowances
Sales Discounts
Net Sales
$
$
$
$
$
Amount
10,720,000
270,000
10,450,000
175,000
10,275,000
14. In January 2004, Pace, Inc. estimated that its year-end bonus to executives would be $480,000
for 2004. The actual amount paid for the year-end bonus for 2003 was $440,000. The estimate for
2004 is subject to year-end adjustment. What amount, if any, of expense should be reflected in Pace's
quarterly income statement for the three months ended March 31, 2004?
a. $ -0-.
b. $110,000.
c. $120,000.
d. $480,000.
15. Gomez Company received $9,600 on April 1, 2004 for one year's rent in advance and recorded the
transaction with a credit to a nominal account. The December 31, 2004 adjusting entry is
a. debit Rent Revenue and credit Unearned Rent, $2,400.
b. debit Rent Revenue and credit Unearned Rent, $7,200.
c. debit Unearned Rent and credit Rent Revenue, $2,400.
d. debit Unearned Rent and credit Rent Revenue, $7,200.
-----------------------------Financial statements for Poore Company are given below:
Poore Company
Balance Sheet
January 1, 2004
; Assets Equities
—————— ————————
Cash $ 240,000 Accounts payable $ 114,000
Accounts receivable 216,000
Buildings and equipment 900,000
Accumulated deprec.——
buildings and equip. (300,000) Capital stock 690,000
Patents 108,000 Retained earnings 360,000
; —————————— ——————————
& nbsp; $1,164,000 $1,164,000
oore Company
Statement of Cash Flows
For the Year Ended December 31, 2004
Increase (Decrease) in Cash
Cash flows from operating activities
Net income&nbs p; $300,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in accounts receivable $(96,000)
Increase in accounts payable 48,000
Depreciation——buildings and equipment 90,000
Gain on sale of equipment (36,000)
Amortization of patents 12,000 18,000
; ———————— ———————
Net cash provided by operating activities 318,000
Cash flows from investing activities
Sale of equipment 72,000
Purchase of land (150,000)
Purchase of buildings and equipment (288,000)
&nb sp; ————————
Net cash used by investing activities (366,000)
Cash flows from financing activities
Payment of cash dividend (90,000)
Sale of common stock 240,000
&nb sp; ————————
Net cash provided by financing activities 150,000
& nbsp; ————————
Net increase in cash 102,000
Cash, January 1, 2004 240,000
& nbsp; ————————
Cash, December 31, 2004 $342,000
&n bsp;
Total assets on the balance sheet at December 31, 2004 are $1,662,000. Accumulated depreciation on
the equipment sold was $84,000.
16. The balance in the Retained Earnings account at December 31, 2004 was
a. $270,000.
b. $660,000.
c. $570,000.
d. $750,000.
Solution:-
Particulars
Opening Retained Earnings
Add:- Net Income
Less:-Dividend paid
Net Sales
$
$
$
$
$
Amount
360,000
300,000
660,000
(90,000)
570,000
17. Capital stock (plus any additional paid-in capital) at December 31,2004 was
a. $600,000.
b. $690,000.
c. $390,000.
d. $930,000.
18. Proponents of historical cost ordinarily maintain that in comparison with all other valuation
alternatives for general purpose financial reporting, statements prepared using historical costs are
more
a. reliable.
b. relevant.
c. indicative of the entity's purchasing power.
d. conservative.
19. Venice Construction Company uses the percentage-of-completion method of accounting. In 2004,
Venice began work on a contract it had received which provided for a contract price of $10,000,000.
Other
details follow:
&nb sp; 2004
&nbs p; ——————————
Costs incurred during the year $4,800,000
Estimated costs to complete as of
December 31 3,200,000
Billings during the year 4,400,000
Collections during the year 2,600,000
What should be the gross profit recognized in 2004?
a. $400,000.
b. $5,200,000.
c. $1,200,000.
d. $2,000,000.
20. Trent Corp.'s trial balance reflected the following account balances at December 31, 2004:
Accounts receivable (net) $19,000
Trading securities &nbs p; 6,000
Accumulated depreciation on equipment and furniture 15,000
Cash ; 11,000
Inventory &n bsp; 30,000
Equipment &nb sp; 25,000
Patent & nbsp; 4,000
Prepaid expenses 2,000
Land held for future business site 18,000
In Trent's December 31, 2004 balance sheet, the current assets total is
a. $85,000.
b. $77,000.
c. $72,000.
d. $68,000.
Logan Inc. began work in 2004 on a contract for $6,300,000. Other data are:
&n bsp; 2004 2005
&nb sp; —————————— ——————————
Costs incurred to date $2,700,000 $4,200,000
Estimated costs to complete 1,800,000 ——
Billings to date 2,100,000 6,300,000
Collections to date 1,500,000 5,400,000
21. If Logan uses the percentage-of-completion method, the gross profit to be recognized in 2004 is
a. $1,080,000.
b. $1,200,000.
c. $1,620,000.
d. $1,800,000.
22. The market price of a $600,000, ten-year, 12% (pays interest semi-annually) bond issue sold to
yield an effective rate of 10% is
a. $673,734.
b. $674,774.
c. $679,962.
d. $1,123,416.
23. Charging off the cost of a wastebasket with an estimated useful life of 10 years as an expense of
the period when purchased is an example of the application of the
a. consistency characteristic.
b. matching principle.
c. materiality constraint.
d. historical cost principle.
24. Vance Co.'s prepaid insurance was $30,000 at December 31, 2004 and $15,000 at December 31,
2003. Insurance expense was $12,000 for 2004 and $9,000 for 2003. What amount of cash
disbursements for insurance would be reported in Vance's 2004 net cash provided by operating
activities presented on a direct basis?
a. $33,000.
b. $27,000.
c. $18,000.
d. $12,000.
25. During 2004, Eaton Corp. started a construction job with a total contract price of $2,100,000. The
job was completed on December 15, 2005. Additional data are as follows:
&nb sp; 2004 2005
&n bsp; ———————— ——————————
Actual costs incurred $810,000 $ 915,000
Estimated remaining costs 810,000 ——
Billed to customer 720,000 1,380,000
Received from customer 600,000 1,440,000
Under the completed-contract method, what amount should Eaton recognize as gross profit for 2005?
a. $135,000.
b. $187,500.
c. $285,000.
d. $375,000.
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