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Unformatted text preview: David A. Dittman, Financial Accounting Fall 2007 Question Sheet HA 121 Preliminary Exam 2 Name: ___________________________________ CUID: ________________________ TRUE / FALSE QUESTIONS Directions: Answer True of False to Question 1 through 15 on the attached answer sheet. Each Question is worth 1 point each. 1. It is important to record sales returns and allowances in a separate account so management can determine the volume of returns and allowances in order to measure the quality of their products. 2. PepsiCo's gross profit percentage decreased from 59.2% in 1997 to 58.3% in 1998. This means that PepsiCo's cost of goods sold as a percentage of sales has decreased. 3. When a particular account receivable is determined to be uncollectible, the entry to write off the account requires a debit to Accounts Receivable. 4. The lower the receivables turnover, the more effectively the company has managed their credit granting and collection activities. 5. An incorrect valuation of the ending inventory affects only the balance sheet and does not affect the income statement. 6. A company has beginning inventory of $50,000, ending inventory of $35,000 and purchases of $250,000. Therefore, its cost of goods sold is $265,000 7. Under FIFO costing, the most recent costs are assigned to ending inventory units 8. The inventory turnover ratio is computed by dividing COGS by the end of year inventory balance. 9. A company that increases inventory by $.5 billion while accounts payable increases by $.7 billion will cause an increase in cash flow from operations of $.2 billion. 10. The appearance of a purchases account in a trial balance usually indicates that the company is using a periodic inventory system. Page 1 David A. Dittman, Financial Accounting Fall 2007 Question Sheet HA 121 Preliminary Exam 2 Name: ___________________________________ CUID: ________________________ 11. Depreciation accounting is a method of cost allocation rather than asset valuation. 12. If an accountant calculates depreciation expense on an asset without taking into account the asset's residual value of $5,000, depreciation expense for the periods will be lower than it should have been. 13. When either the estimated useful life or estimated residual value (or both) of an operational asset are changed, all prior financial statements are reissued reflecting the correction retroactivity. 14. Depreciation expense reduces the amount of reported net income for a company, but it does not reduce the amount of cash generated by the company's operations because depreciation is a non-cash expense. 15. Most companies do not estimate a residual value for intangible assets since the legal benefits they provide are completely used up at the end of their useful or legal lives whichever is shorter....
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This note was uploaded on 10/09/2009 for the course H ADM 201 at Cornell.