ACCT Exam 2: ch5-6 concepts
ACCT Exam 2: Chapters 5-6 Concepts Quiz
Test your knowledge of accounting concepts covered in Chapters 5 and 6 with this comprehensive quiz. Designed for students and professionals alike, it covers a wide range of topics, including inventory management, internal controls, and the valuation of marketable securities.
Key features of this quiz:
- 69 engaging questions
- Multiple choice format for easy answering
- Instant feedback on your knowledge
If an organization purchases $3000 of supplies on account with terms of 2/10 n30.
$2940 can be paid in 10 days of invoice date, or $3000 must be paid within 30 days of the invoice date.
$2,880 must be paid within 10 days of the invoice date.
$2,994 must be paid within 30 days of the invoice date.
$2,940 can be paid within 10 days of the invoice date, or $3,060 must be paid within 30 days of the invoice date.
Which of the following inventory accounting systems has been made much more feasible as a result of computer system developments?
Punctual
Physcial
Perpetual
Periodic
The valuation of short-term marketable securities on the balance sheet is likely to be for an amount that is approximately equal to the cost of these investments because:
Generally accepted accounting principles require that short-term marketable securities be reported at cost.
The high quality and close maturity date of the securities cause their market values to be relatively stable
The question statement is false; the valuation of short-term marketable securities on the balance sheet is not likely to be for an amount that is approximately equal to the cost of these investments.
The market value of short-term marketable securities does not fluctuate from cost.
When an uncollectible account receivable is written off against the Allowance for Bad Debts account
Total current assets decrease, and expenses are not affected.
Total current assets are not affected
Total current assets decrease, and expenses increase
Total current assets decrease, and expenses decrease
The accrual of interest on short-term market securities results ins:
An increase in current assets and an increase in net income
An increase in current liabilities and an increase in net income
An increase in current assets and decrease in net income
An increase in noncurrent assets and increase in liabilities
The amount of cash related to a particular bank checking account that is shown on the balance sheet at December 31 is:
The cash balance shown on the bank records at the close of the business on December 31, without further adjustments
The cash balance shown in the general ledger account for this checking account as of the close of business on December 31, after recognizing any bank service charges and/or interest income from December 31 bank account reconciliation
The cash balance shown in the general ledger account for this checking account as of the close of business on December 31, after recognizing any outstanding checks and/or deposits in transit from the December 31 bank account reconciliation.
The cash balance shown in the company's general ledger account for this checking account at the close of business on December 31, without further adjustments.
The account concept or principle applied when the cost of short-term marketable securities is adjusted to market values:
Original cost
Consistency
Objectivity
Matching revenue and expense
With respect to the write-off of an uncollectable account receivable against the allowance for bad debt account, a sound system of internal control (checks and balance system) would require:
An investigation of why credits was extended to this customer in the first place
A. An investigation of why credits was extended to this customer in the first place
A lawsuit to be initiated to recover the uncollectible amount
The write-off to be approved by two employees
A firm has used LIFO for serval years during which costs have trended higher. The effect on 2020 net income using LIFO, relative to FIFO, will be:
Net income for 2020 will be greater under LIFO than FIFO
Net income for 2020 will be less under LIFO than FIFO
Impossible to determine from the info given
Net income for 2020 will be the same under LIFO as FIFO
For the following reconciling items would an adjusting entry be necessary on the company books?
A Deposit in Transit
An Outstanding Check
An error by the banks
A bank service charge
Which of the following is the correct balance sheet presentation for current assets
Cash, Account Receivables, Inventories, Prepaid Expense, other current assets
Cash, Inventories, Account Receivable, Prepaid Expense
Cash Equivalent, Cash, Account Receivable, Other Current Assets
Market Securities, Cash, prepaid expense, Account Receivable
A cash equivalent is a current asset that:
Will be converted to cash within 1 year
Will be converted to cash within 1 month
Is readily converted into cash with minimal risk
Is readily converted into cash with substantial risk
Account Receivable are reported at;
Market value
Historical cost
Weighted average cost
Net realizable value
The Allowance for Bad Debts Account is a(n):
Contra revenue
Contra current asset
Current asset
Expense
Which of the following is true regarding cost flow assumption:
Manufacturing firms are required to use FIFO
Service firms are required to use LIFO
If a firm uses FIFO for tax purposes, then FiFO must be used for financial reporting purposes
If a firm uses LIFO for tax purposes, then LIFO must be used for financial reporting purposes
Which of the following is (are) a category for securities :
Traded
Held-to-maturity
Available-for-sales
All of the answers are correct
In an inflationary economics environment, the selling price set for a firm’s products will:
Be higher if LIFO is used than if FIFO is used
Be higher if FIFO is used than if LIFO is used
Be derived from the weighted average cost of inventory
Not be affected by the cost flow assumptions used.
The effect of an error resulting in an understatement of ending inventory is to:
Overstate cost of goods sold of the current period
Overstate the next period’s beginning inventory
Overstate operating expense of the current period
Understate cost of goods sold of the current period
The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to:
Determine the amount of cash in the account actually available to the entity
Verify the amount of petty cash on hand
Determine whether or not the entity has issued and NSF check
Satisfy generally accepted accounting principles
Trading and available-for sale securities are reported on the balance sheet at:
Historical cost
Market value
Net realizable value
Weighted average cost
An organization’s system of internal control is designed primarily to:
Provide and operating framework for all employees as they work to achieve the organization's goals
Increase efficiency by letting one employee handle all aspects of a transaction from beginning to end
Ensure that the organization’s balance sheet will always balance
Ensure that no employees steal the organization’s property
Prepaid expenses classified as current assets represent:
Expenses of the current year that have been paid in advance
Cash that has been segregated to pay for future expenses
Cash payments in the current year that will be recognized as expenses and matched against revenues of the next year
Current year expenses that have been accrued
One of the most important reasons for having a system of internal control is to:
Improve the effectiveness and efficiency of the operations of the organization.
Ensure no employees steal from the organizations property
Ensure that the organizations balance sheet is always balanced
Increase efficiency by letting one employee handle all aspects of a transaction from beginning to end
Regardless of the inventory cost flow assumption used, inventories on the balance sheet are stated at:
Original cost
Replacement cost
Realizable value
The lower of cost or market
The inventory cost flow assumption describes the flow of product cost:
From the asset (inventory) account and to the expense (cost of goods sold) account
From the warehouse to the customer
From the asset (inventory) account to the revenues (sales) account
From the revenues (sales) account and to the expense (cost of goods sold) account
When a firm uses the LIFO inventory cost flow assumption:
Better matching of revenue and expense is achieve than under FIFO
Net income will be greater than if FIFO is used
Cost of goods sold will be the same as if FIFO was used
Cost of goods sold will be greater than if FIFO was used
The balance sheet evaluation of inventory is:
Lower of cost or market
Lower of selling price or cost.
Lower of realizable value
One of the principal reasons for selecting the LIFO cost flow assumption instead of the FIFO cost flow assumption in an inflationary economic environment is that:
A higher selling price can be established
Balance sheet inventory values will be higher
Net income will be higher
Income tax will be lower
Bad debt expense is recognized in the same accounting period as the revenue that is related to the receivable because:
The account receivable asset should be stated at original cost
Revenue should be stated at realizable value plus interest
All expenses incurred in the current period should be subtracted from the current period revenues
The exact amount of the losses from bad debt is known
The current assets of most companies are usually made up of:
A very small proportion (<10%) of the total assets of the entity
Assets that are currently used in the operations of the company
Cash and assets expected to be converted to cash within a year
Cash, marketable securities, and accounts and notes receivable.
Which of the following is NOT an example of an inventory account a manufacturing firm might use?
Finished good inventory
Raw material inventory
Work in progress inventory
Merchandise inventory
When a manufacturer invest in short-term marketable securities
Risk avoidance is of great importance
The market value of the securities is likely to fluctuate significantly
The securities are likely to have a maturity date more than a year in the future
The return on investment is more important than the risk involved
An account receivable results from the sale of:
Property, plant, and equipment for cash
Good and services to customers for cash
A firm’s common stock
Good and services to customers on account
The reason for recording a prepaid expense as a current asset is:
That the prepaid item had not yet become an expenses
To avoid recognizing an expense so net income will be higher for the current account period
That the expense has been incurred but not yet paid
That the prepaid item will be returns for cash refund
Which of the following is true regarding notes receivable?
A note receivable is always a current asset
A note receivable is always a long term asset
A note is more formal document than an account receivable
A note is less formal document than account receivable
Assume that on November 1, 2019, a 3-month rent payment for $8,000 per month (for a total of $24,000) was made with respect to a lease that the company entered into on that date as a tenant. The company took occupancy of the rented space immediately. The lease term will expire on January 31, 2020. The $24,000 payment was recorded as a debit to Prepaid Rent on November 1, 2019. The adjusting entry on December 31, 2019, is as follows:
Dr Rent Expense 8,000 Cr. Prepaid Rent 8,000
Dr Rent Expense 16,000 Cr. Prepaid Rent 16,000
Dr. PrePaid rent 16,000 Cr. Rent Expense 16,000
Dr. PrePaid rent 8,000 Cr. Rent Expense 8,000
When a machine having a net book value of 15000 is sold for 12,000:
Current assets decrease, equipment (net) increases, and net income increases.
Current assets increase, equipment (net) decreases, and net income increases.
current assets increase, equipment (net) decreases, and net income decreases.
Current assets increase, equipment (net) increases, and net income decreases.
A particular common stock has an annual cash dividend of 4$ per share and is predicted to have a market value of $60 per share 5 years from now. Assuming a discount rate of 10%, a fair market price for the stock today is: (refer to tables 6.4 & 6.5)
$ 52.41
$229.93
$5.24
$1.20
Depreciation, in accounting, is a process that results in:
Spreading the cost of an asset over its useful life to the entity.
Accumulating cash for the replacement of the asset.
An accurate measurement of the economic usefulness of an asset.
Moped, Inc. Purchased machinery at a cost of $44,000 on Jan 1, 2020. The expected useful life is 5 years and the asset is expected to have a salvage value of $4,000. Moped depreciates its assets through the double-declining balance method. What is the accumulated depreciation for this asset on Dec 31, 2021?
$10,561
$28,160
$17,600
$8,800
Which of the following statements best describes the process of accounting for depreciation?
A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.
Allocation of the cost in a manner that will be ensure that plant and equipment items are not carried on the balance sheet in excess of net realizable value
Allocation of the cost of an asset to the period in which services are received from the asset
Regular reductions of asset value to correspond to changes in the market value as the asset ages
Which of the following statements concerning repair and maintenance expenditures is true?
Maintenance expenditures that extend the useful life and/or increase the salvage value of an asset should be capitalized and depreciated over the asset’s remaining useful life.
Routine repair costs and preventive maintenance expenditures are capitalized as assets in the period in which they are incurred.
All repair and maintenance expenditures are accounted for as expenses in the year in which they are incurred.
For income tax purposes, most taxpayers would prefer to capitalize an expenditure and depreciate the asset over time rather than expensing the expenditure and deducting the entire amount in the year it is incurred.
Many companies use accelerated depreciation for tax purposes because:
It results in lower taxable income than straight-line depreciation.
It reflects the amount of cash used in depreciation.
It is easier to calculate than straight-line depreciation.
It is used for determining net income reported to stockholders.
When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land:
The total cost of the land and old building are capitalized as land cost.
Any of the purchase cost allocated to the old building is reported as a loss.
The cost assigned to the land excludes the cost of the old building.
Any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building.
The intangible asset goodwill:
May arise when one company purchases another company.
Represents the management team's assessment of its value to the company.
Arises because the market value of a company's assets is greater than cost.
All of the above are correct.
Expenditures capitalized as long lived assets generally include those expenditures that:
Are material in amount and that have an economic benefit to the entity that extends beyond the current year.
Are made for normal repairs to maintain the usefulness of the asset over a number of years.
Are for items that have a physical life of more than a year, regardless of their cost.are material in amount and that have an economic benefit to the entity only in the current year.
Moped, Inc. Purchased machinery at a cost of $44,000 on Jan 1, 2020. The expected useful life is 5 years and the asset is expected to have a salvage value of $4,000. Moped depreciates its assets through the double-declining balance method. What is the firm’s gain or loss if the machinery is sold for $22,000 on Dec 31, 2021?
$6,160
$15,840
-$6,160
-$15,840
Leasehold is an example of which of the following types of assets?
Intangible asset.
Goodwill
Property, plant, and equiptment
Current Asset
The present value of an obligation of $8,000 payable in 7 years at 8% is:
$ 4,668
$373.43
$12,694.99
$51,851.85
If there is a loss on the disposal of a depreciable asset:
In retrospect, the depreciation expense recognized over the asset’s life was too low. (undervalued)
No cash was received in the disposal transaction
In retrospect, the life over which the asset was depreciated was to short
Net book value of the asset was negative
Which of the following is not a term that describes part of the accounting for noncurrent assets?
Depreciation
Depletion
Accumulation
Amortization
Moped, Inc. Purchased machinery at a cost of $44,000 on Jan 1, 2020. The expected useful life is 5 years and the asset is expected to have a salvage value of $4,000. Moped depreciates its assets through the double-declining balance method. What is the firm's gain or loss if the machinery is sold for $22,000 on Dec 31, 2021?
Gain of $6160
Loss of $6160
Gain of $28160
Loss of 28,160
Moped, Inc. Purchased machinery at a cost of $44,000 on Jan 1, 2020. The expected useful life is 5 years and the asset is expected to have a salvage value of $4,000. Moped depreciates its assets through the double-declining balance method. What is the firm’s depreciation expense for the year ended Dec 31, 2020?
$17,600
$16,000
$10,560
$28,160
Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI:
Is more than the fair value of the net assets of the acquired company.
Is less than the fair value of the net assets of the acquired company.
Is more than the fair value of the net assets of the acquiring company
Is less than the fair value of the net assets of the acquiring company
Psyche Company wants to acquire Trim Company. Trim's ROI has been above average for its industry; net income has averaged $140,000 a year more than the industry average. These "excess" earnings are expected to continue at this amount for 5 years. Assuming a discount rate of 8%, how much goodwill will arise from Psyche's purchase of Trim? (refer to tables 6.4 & 6.5)
$81,672
$176,314
$700,000
$558,978
Which of the following accounting concepts/principles is most significant in the development of a capitalization policy?
Original Cost.
Matching of revenue and expense.
Consistency.
Materiality.
Leasehold is an example of which of the following types of assets?
Goodwill.
Current asset.
Intangible asset.
Property, plant and equipment.
The entry to record depreciation expense:
Decreases working capital and decreases net income.
Decreases a contra asset and decreases net income.
Decreases an asset and increases a contra asset.
Increases a contra asset and decreases net income.
Depreciation, in accounting, is a process that results in:
Depreciable assets being reported in the balance sheet at their fair value.
Accumulating cash for the replacement of the asset.
Spreading the cost of an asset over its useful life to the entity.
An accurate measurement of the economic usefulness of an asset.
Which of the following statements best describes the process of accounting for depreciation?
A process for setting aside cash so funds will be available to replace the asset.
A process for recognizing all of the cost associated with using an asset in a revenue generating activity.
A process that attempts to recognize loss in economic value over a period of time.
A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.
Which of the following statements concerning the accounting for leases is not true?
The economic impact of a financing lease isn't really any different from buying the asset outright and signing a note payable that will be paid off, with interest, over the life of the asset.
At the inception of a financing lease, the lessee's total assets and total stockholders' equity are both increased for the present value of the lease payments to be made over the life of the lease.
A financing lease results in the lessee assuming virtually all the benefits and risks of ownership of the leased asset.
Assets rented under a short-term operating lease are not reflected on the lessee's balance sheet, and the rent expense (or lease expense) involved is reported in the income statement as an operating expense.
If an organization has an obligation to pay $25,000 to a supplier two years from now, the present value of the obligation:
Is $25,000.
Is less than $25,000.
Could be calculated using an annuity factor from the present value tables.
Is more than $25,000.
It is not unusual for a company to use different depreciation methods for book and tax purposes. When this happens, the firm usually:
Uses an accelerated depreciation method for book purposes.
Is trying to minimize its book income.
Is trying to maximize its taxable income.
Uses an accelerated depreciation method for tax purposes.
The modified Cost recovery system (MACRS) specifies which of the following depreciation methods for land?
Straight-line
Land is not depreciable
Double declining balance
150% declining balace
The principal challenge to calculating depletion is estimating:
The cost of the asset
The salvage value of the exploration equipment
The demand for the product
The quantity of material to be recovered
Accounting for natural resources
Involves using the accumulated depreciation account
Involves estimating the quantity of natural resources to be recover
Involves an exception to the matching concept
Involves sum-of-the year's digit depletion calculations
When an accelerated depreciation method is used to calculate depreciation expense:
Depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used.
The net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.
The accumulated depreciation account balance will increase by a larger amount in the last half of an asset's life than if straight-line depreciation is used.
The net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used.
The present value concept is widely applied in business because
Money has value over time
Inflation erodes the purchasing of power of money
Most obligations are settled within a year
Accounting for operating leases require its use
When a depreciable asset is sold:
A loss arises if the sale's proceeds exceed the net book value
Depreciation expenses is adjusted so there is no gain or loss
Any cash received results in a gain
A gain arises if the sale's proceeds exceed the net book value
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