1. Which of the following is true about corporations?
a. Stockholders acts can bind the corporation even though the stockholders have not been
appointed as agents of the corporation.
b. A stockholder is personally liable for the debts of the co
Chapter 4 ORION
1. Which of the following statements about accrual-basis accounting is true?
a. Accrual-basis accounting recognizes expenses when they are incurred
b. Accrual-basis accounting recognizes revenues when they are received in cash
1. A company receives $198, $13 of which is for sales tax. The journal entry to record the sale
would include a
a. Debit to Sales Revenue for $198.
b. Credit to Sales Taxes Payable for $13.
c. Debit to Sales Tax Expense for $13.
d. Debit to Cas
CHAPTER 6 ORION
1. As a result of a thorough physical inventory, Railway Company determined that it had inventory
worth $180,000 at December 31. This count did not take into consideration the following facts:
Rogers Consignment store currently has goods w
Chapter 3 ORION
1. Which of the following would be considered an economic event that requires an accounting
a. The hiring of a new employee
b. Creation of prototypes to accompany a bid for work
c. The purchase of new computers
d. Corporate de
CHAPTER 7 ORION
1. What does the term bonding mean when it refers to employees?
a. They have worked for the company for at least 10 years
b. It is impossible for them to steal from the company
c. They have been insured against theft of assets
d. They are
1. What are notes or accounts receivable that result from sales transactions often called?
a. Merchandise receivables
b. Sales receivables
c. Nontrade receivables
d. Trade receivables
2. _ are also called trade receivables
a. Accounts receivable
CHAPTER 9 ORION
1. When can interest be included in the acquisition of a plant asset?
a. When the asset is purchased on credit
b. When it is a part of a lump-sum purchase
c. During the construction period of a self-constructed asset
d. When the asset acqu
CHAPTER 5 ORION
1. A department store uses a perpetual inventory system. At year-end, the balance in the
merchandise inventory account is $2 million. Assuming that the inventory records have been
properly, a year-end physical inventory
a. Will probably in
Chapter 2 ORION
1. The operating cycle of a company is
a. One year long
b. The average time required to produce goods for resale
c. Less than one year
d. The average time required to go from purchasing inventory to receiving cash from its
2. In thei
CHAPTER 1 ORION
1. An owner who wants to have limited liability should form which type of business enterprise?
a. A partnership
b. A corporation
c. A proprietorship
d. A sole proprietorship
2. Which of the following is true of a partnership?
a. A partners
Brief Exercise 9-1
Presented below is information related to Rembrandt Inc.s inventory.
Historical cost $257.45 $143.63 $71.82
Selling price 287.26 196.48 99.93
Cost to distribute 25.75 10.84 3.39
Current replacement cost 275.07 142.28 69.11
Normal prot m
When companies buy several months of supplies at a time, the purchase is considered an asset because
it will benefit future periods. (If the supplies are for the current month, it would be considered an
The journal entry would be either
Many times companies receive money in advance of earning the revenue associated with the money. If
the performance obligation has not yet been met by the company, it cannot recognize the revenue.
Consider the New Orleans Saints. They are
These are expenses the business has incurred but must be internally recognized or accrued by the
business to property state expenses and liabilities. These expenses have accrued but are not yet paid as
of the date of the financial stmts.
Companies purchase equipment to produce income. These assets benefit future periods, and the cost of
the asset must be rationally and systematically expensed against future revenues. The rational and
systematic allocation of the cost of equip
Prepaid Expenses Example insurance
Often insurance is paid in advance. (Think of your own car insurance.) The journal entry would be either:
Accounting 2001 final Red=exact
1. Generally accepted accounting principles are primarily formulated by:
A. the Securities and Exchange Commission
B. the American institute of Certified Public Accountants
C. The Financial Accounting
Exam 2 Review Solutions
Note Tabs for different worksheets (Whitecotton)
NOTE: If you want to do well on this test, do not look at these solutions before first attempting the problems.
remember to check tabs at bottom for other problem solutions
Managerial Accounting 2101
Exam 2 Knowledge Guide
All information in the text, notes, and covered on WileyPlus or ORION is eligible for testing.
Listed below are the knowledge content areas that can be tested on Exam 2. This is an 80 point exam. You will
Exam 2 Formula Review Sheet
Chapter 7 Incremental Analysis
1 Concepts Incremental Analysis Decision Processes
a Relevant cost
b Opportunity cost
c Sunk cost
Types of Decisions how to compute; which to select; income impact; and what would
Chapters 8 & 9
Chapter 8 - Tests of Controls
Chapter 9 - Substantive Procedures
Two types of risks:
True State of the Population
Control Not Working
Control Not Working
There are three major classes of assertions:
Transaction and Event Assertion
4. Accuracy 5. Classification
Chapters 10 and 16
Auditing Sales, A/R, and Cash
The revenue cycle includes:
What assertions are of most concern when auditing
Substantive Audit Procedu
Internal Control in a Financial Statement Audit
Audit Risk Model: AR = IR x CR x DR
Control risk is the risk that a material misstatement of an
assertion about an account or disclosure will not be
prevented or detected on a timely basis by the c
Professional Conduct, Independence, and Quality Control
Independence A member in public practice shall be independent
in the performance of professional services as required by the
standards promulgated by bodies designated by Council.
Audit Risk - Possibility that the auditor expresses an
inappropriate audit opinion when the financial statements
are materially misstated.
Inherent Risk (IR)
Control Risk (CR)
Risk of Material Misstatement (RMM)
Audit Planning, Types of Audit Tests and Materiality
Client Acceptance and Continuance
Client Continuance -
Preliminary Engagement Activities
Determine audit engagement team requirements
Assess Compliance with Ethical and I