AC550 Midterm
6 Pages

AC550 Midterm

Course Number: ACCT 550, Fall 2011

College/University: Keller Graduate School...

Word Count: 1262

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1. (TCO A) Which of the following statements is not an objective of financial reporting? (Points: 5) Provide information that is useful in investment and credit decisions. Provide information about enterprise resources, claims to those resources, and changes to them. Provide the liquidation value of a company. Provide information that is useful in assessing cash flow prospects. 2. (TCO A) Under Sarbanes Oxley,...

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(TCO 1. A) Which of the following statements is not an objective of financial reporting? (Points: 5) Provide information that is useful in investment and credit decisions. Provide information about enterprise resources, claims to those resources, and changes to them. Provide the liquidation value of a company. Provide information that is useful in assessing cash flow prospects. 2. (TCO A) Under Sarbanes Oxley, the new law does not: (Points: 5) require a national CPA license for all CPAs. establish an oversight board, called the Public Company Accounting Oversight Board, for accounting practices. require a company to maintain a system of internal controls. require codes of ethics for senior financial officers. 3. (TCO A) The cash method of accounting: (Points: 5) is used by most publicly-traded corporations for financial statement purposes. is not in accordance with the matching principle for most publicly-traded corporations. is often used on the income statement by large, publicly-held companies. All of the above is true. 4. (TCO A) The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is (Points: 5) relevance. reliability. verifiability. neutrality. 5. (TCO A) The two primary qualities for accounting information are: (Points: 5) relevance and reliability reliability and historical cost comparability and consistency none of the above. 6. (TCO A) Which basic element of financial statements arise from peripheral or incidental transactions? (Points: 5) Assets Liabilities Gains Expenses 7. (TCO A) Which of the following is not a basic assumption underlying the financial accounting structure? (Points: 5) Economic entity assumption Going concern assumption Historical cost assumption. Monetary unit assumption 8. (TCO A) What is the quality of information that enables users to better forecast future operations? (Points: 5) Reliability. Materiality. Comparability. Relevance. 9. (TCO A) Accounting information is considered to be relevant when it (Points: 5) can be depended on to represent the economic conditions and events that is intended to represent. is capable of making a difference in a decision. is understandable by reasonably informed users of accounting information. is verifiable and neutral. 10. (TCO A) Which of the following is not a basic assumption underlying the financial accounting structure? (Points: 5) Economic entity assumption. Going concern assumption. Periodicity assumption. Historical cost assumption. 11. (TCO A) Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy? (Points: 5) Monetary unit assumption. Periodicity assumption. Going-concern assumption. Economic entity assumption. 12. (TCO A) Which of the following are benefits of providing financial information? (Points: 5) Potential litigation. Auditing. Disclosure to competition. Improved allocation of resources. 13. (TCO D) The balance sheet is useful for analyzing all of the following except (Points: 5) liquidity. solvency. profitability. financial flexibility. 14. (TCO D) The balance sheet contributes to financial reporting by providing a basis for all of the following except (Points: 5) computing rates of return. evaluating the capital structure of the enterprise. determining the increase in cash due to operations. assessing the liquidity and financial flexibility of the enterprise. 15. (TCO D) The net assets of a business are equal to (Points: 5) current assets minus current liabilities. total assets plus total liabilities. total assets minus total stockholders' equity. none of these. 16. (TCO D) Stine Corp.'s trial balance reflected the following account balances at December 31, 2010: Accounts receivable (net) Trading securities Accumulated depreciation on equipment and furniture Cash Inventory Equipment Patent $24,000 6,000 15,000 11,000 30,000 25,000 4,000 Prepaid expenses Land held for future business site 18,000 2,000 In Stine's December 31, 2010 balance sheet, the current assets total is: (Points: 5) $90,000 $82,000 $77,000 $73,000 17. (TCO D) Which of the following is not a long-term investment? (Points: 5) Cash surrender value of insurance Franchise Land held for speculation A sinking fund 18. (TCO D) The presentation of long-term liabilities in the balance sheet should disclose: (Points: 5) maturity dates interest rates conversion rights all of the above 19. (TCO D) Typical contractual situations that are disclosed in the notes to the balance sheet include all of the following except (Points: 5) debt covenants lease obligations advertising contracts pension obligations 20. (TCO D) A generally accepted account is: title (Points: 5) Prepaid Rent Prepaid Revenue Earned Surplus Reserve for Doubtful Accounts 21. (TCO D) Equity or debt securities held to finance future construction of additional manufacturing plants should be classified on the balance sheet as: (Points: 5) current assets. property, plant and equipment. intangible assets. long-term investments. 22. (TCO D) Working capital is (Points: 5) capital that has been invested in the business. unappropriated retained earnings. cash and receivables less current and long-term liabilities. none of the above. 1. Unearned rent at 1/1/10 was $7,300 and at 12/31/10 was $8,000. The records indicate cash receipts from rental sources during 2010 amounted to $40,000, all of which was credited to the Unearned Rent Account. You are to prepare the missing adjusting entry. (Points: 12) DR Rental Revenue, $700 CR Unearned Rent, $700 2. Allowance for doubtful accounts on 1/1/10 was $75,000. The balance in the allowance account on 12/31/10 after making the annual adjusting entry was $60,000, and during 2010 bad debts written off amounted to $30,000. You are to provide the missing adjusting entry. (Points: 12) DR Bad Debts Expense, $15,000 CR Allowance for doubtful accounts, $15,000 3. Prepaid rent at 1/1/10 was $20,000. During 2010 rent payments of $123,000 were made and charged to "rent expense." The 2010 income statement shows as a general expense the item "rent expense" in the amount of $122,000. You are to prepare the missing adjusting entry that must have been made, assuming reversing entries are not made. DR. Cash, $1000 CR. Rent Expense, $1000 4. Retained earnings at 1/1/10 was $100,000 and at 12/31/10 it was $210,000. During 2010, cash dividends of $50,000 were paid and a stock dividend of $40,000 was issued. Both dividends were properly charged to retained earnings. You are to provide the missing closing entry. (Points: 12) DR Income Summary, $120,000 CR Retained Earnings, $120,000 5. For the year ended December 31, 2010, Transformers Inc. reported the following: Net income $ 60,000 Preferred dividends declared, $10,000 Common dividend declared, $2,000 Unrealized holding loss, net of tax; $1,000 Retained earnings $80,000 Common stock, $40,000 Accumulated Other Comprehensive Income, Beginning Balance 5,000 What would Transformers report as its ending balance of Accumulated Other Comprehensive Income? (Points: 15) Answer = $4,000 Beginning Balance $5000 - $1000 Unrealized holding loss 6. (TCO C) Presented below is certain information pertaining to Edson Company. Assets, January 1 $240,000 Assets, December 31 $230,000 Liabilities, January 1 $150,000 Common stock, December 31 $80,000 Retained earnings, December 31 $31,000 Common stock sold during the year $10,000 Dividends declared during the year $13,000 Compute the net income for the year. (Points: 20) Answer = Net Income ($18,000) A = L + OE Beginning: 230,000 = L + 111,000 (RE + Common Stock); L = 119,000 Ending: 240,000 = 150,000 + OE; OE = 90,000 The change in owner's equity during the year is equal to net income, plus owner contributions, minus dividend payments. 111,000 + 10,000 - 13,000 + Net Income = 90,000 Net Income = -18,000 7. (TCO C) At Ruth Company, events and transactions during 2010 included the following. The tax rate for all items is 30%. (1) Depreciation for 2008 was found to be understated by $30,000. (2) A strike by the employees of a supplier resulted in a loss of $25,000. (3) The inventory at December 31, 2008 was overstated by $40,000. (4) A flood destroyed a building that had a book value of $500,000. Floods are very uncommon in that area. The effect of these events and transactions on 2010 income from continuing operations net of tax would be: (Points: 15) Register to View Answerdecrease in Net Income by $24,500 = -35,000 net change + 10,500 tax liability paid on difference Depreciation under: +30,000 Employee Strike: -25,000 Inventory over: -40,000 Loss of building is an extraordinary item and is not calculated with Income from Continued Operations. 8. What is FASB Codification? Explain in detail. (Points: 22) FASB Accounting Standards Codification was launched in 2009 in response to growing concerns from professional on how to prepare finical statements in accordance with the correct authoritative manner. In the past the document that comprised GAAP varied in format and completeness which led to inconsistencies in company reporting and statements that were difficult to interpret. In an effort to streamline and simplify accounting and reporting standards in a user friendly way the FASB develop the "Codification" to provide all the authoritative literature in one place, organized by using a topical structure.

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