Econ4 Finals

Econ4 Finals - Quick Study 2-3 (5 minutes) a. b. c. d. e....

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Question 1. All of the following assets depreciate over time EXCEPT for: A) Computer B) Machinery C) Land D) Company Car Question 2. Which of the following accounts is NOT increased by a debit? A) Asset B) Expenses C) Losses D) Revenue Answers: Question 1. Answer: C Computers, Machinery and Company Cars all lose value over time. This is because all these items have a definite life span and its depreciation expense is its initial cost spread over its lifespan. On the contrary, land cannot be consumed and does not have a definite lifespan. Hence, there is no way to depreciate land. Question 2. Answer: D The LHS (Assets) The RHS (Liability, Equity, Revenues, Expenses) Increase Debit Credit Decrease Credit Debit Temporary Accounts (E.g. Revenue) are only on the right hand side and increases when credited. Furthermore, all revenues are credits and they increase equity. While all expenses are debits; decrease to equity. Question 3. An example of a cash flow from an investing activity is: a.Receipt of cash from the sale of equipment b.Receipt of cash from the sale of stock c.Payment of cash for dividends d.Payment of cash to acquire treasury stock Question 4. If a corporation reacquires its own stock, the stock is listed on the balance sheet in the: a.Current Assets section b.Long Term Liabilities section c.Stockholder’s Equity Section
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d.Investment Section Answer 1= A, as investing activities include receipts from the sale of non-current assets, such as equipment. Answers B, C, D are cash flows from financing activities. Answer 2= C, as reacquired stock also known as treasury stock should be listed in the Stockholder’s Equity section. The price paid for the treasury stock is deducted from the total of all the stockholder’s equity accounts. Reference: The above questions were inspired by the materials presented in the book “Accounting” by Warren, Reeve, and Fess 19 th Edition. Question 5. Which principle is the main reason why we only record purchased assets on the balance sheet? a. The Disclosure Principle b. The Materiality Principle c. The Principle of Conservatism d. The Objectivity Principle Question 6. Which of the followings is a task of traditional investment bankers? a. Take deposits from customers and generate loans b. Help invest and manage their clients’ money c. Underwrite securities, such as stocks and bonds d. Create business forecasting models for their companies Answer: d. The Objectivity Principle Reason: Transactions give “accounting values independence, objective values.” The Objectivity Principle also states “results of actual transactions with other entities are the preferred basis for objectivity because it lends independence to the reporting process.” References: P. 15, 19 in the Reader Answer: c. Underwrite securities, such as stocks and bonds Reason: Investment bankers underwrite securities to raise capital for individuals, companies or the government. They are not asset managers, commercial bankers, or accountants.
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This note was uploaded on 03/20/2012 for the course ECON 4 taught by Professor Willoughby during the Spring '08 term at UCSD.

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Econ4 Finals - Quick Study 2-3 (5 minutes) a. b. c. d. e....

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