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Final ExaminationUGBA XBW102A: Introduction to Financial Accounting-multiple choiceFor a business, a supplier




Question;Final ExaminationUGBA XBW102A: Introduction to Financial Accounting1. For a business, a supplier;A) is a company or individual that owns shares of the;business.;B) is a company or individual to whom the business sells;goods or services.;C) provides goods and services used by the business.;D) makes loans to the company to help finance its;activities.;E) None of the above is correct.;2. A group of people establishing a business might prefer to;set it up as a corporation rather;than a partnership;A) to have limited liability.;B) to avoid double taxation.;C) because of ease of formation.;D) because a corporation is considered to be a separate;business entity and a partnership is;not;E) Both A and D are correct.;3. The ending retained earnings balance of Juan's Mexican;Restaurant chain increased by $4.5;billion from the beginning of the year. The company had;declared a dividend of $1.9 billion;during the year. What was the net income earned during the;year?;A) $2.6 billion;B) $4.5 billion;C) $6.4 b illion;D) There is no way to determine net income as not enough;information was given.;4. The collection of an account receivable from a customer;would;A) Increase liabilities.;B) Decrease liabilities.;C) Not affect liabilities.;D) Decrease stockholders' equity.;E) None of the above is correct.;5. When a company buys equipment for $60,000 and pays for;one third in cash and the other;two thirds is financed by a note payable, the following are;the effects on the equation;A) cash decreases by $20,000;B) equipment increases by $60,000;C) liabilities increase by $40,000;D) total assets increase by $40,000;E) All of the above effects occur on the equationFinal;Examination;UGBA_XBW102A_Form A Page 3;6. The duality (or duality of effects) concept states;A) there is more than one way of looking at any situation.;B) every transaction has good and bad ramifications.;C) there are two entities involved in every transaction.;D) every transaction has at least two effects on the;accounting equation.;E) None of the above is correct.;7. Rarro Corporation received $50,000 cash invested by its;owners. The effect on the;fundamental accounting model was;A) assets and liabilities each increased by $50,000.;B) assets and revenues each increased by $50,000.;C) stockholders' equity and revenues each increased by;$50,000.;D) stockholders' equity and assets each increased by;$50,000.;E) stockholders' equity and liabilities each increased by;$50,000.;8. Borrowing $100,000 of cash from First National Bank would;A) increase cash by a credit and increase notes payable by a;debit.;B) increase notes payable by a debit and increase cash by a;debit.;C) increase notes payable by a credit and increase cash by a;debit.;D) decrease cash by a debit and decrease notes payable by a;credit.;E) None of the above would occur.;9. Which of the following liability accounts is usually not;satisfied by payment ofcash?;A) Accounts payable;B) Unearned revenues;C) Taxes payable;D) All of the above are satisfied by paying cash;10. Which of the following would cause retained earnings to;increase?;A) Sale of service on credit.;B) Sold shares of our company stock to investors.;C) Gain on the disposal of land and building.;D) Both A and C would increase retained earnings;E) All of the above would increase retained earnings.;11. A landlord received $600 cash for December 20C's rent;but the tenant's rent for;December is $1,000. Which of the following is true for year;ended 20C.;A) $600 would be reported on the statement of cash flows.;B) $400 would appear on the balance sheet as rent;receivable.;C) $1,000 would appear on the income statement as rent;revenue earned.;D) All of the above are true.;E) None of the above is true.Final Examination;UGBA_XBW102A_Form A Page 4;12. In 2001, Boeing Company reported total assets of $48,343;million and net sales of $58,198;million. In 2000, they reported total assets of $42,677;million and net sales of $51,321;million. Their 2001 asset turnover ratio was;A) 1.20;B) 1.28;C) 1.25;D) None of the above.;13. On December 31, 20A, Denton Corporation paid $3,000 for;next year's insurance policy.;This transaction should be recorded as follows by Denton;A) Insurance Expense $3,000;Insurance Payable $3,000;B) Prepaid Insurance $3,000;Insurance Payable $3,000;C) Prepaid Insurance $3,000;Cash $3,000;D) Insurance Expense $3,000;Cash $3,000;A) Entry A;B) Entry B;C) Entry C;D) Entry D;14. Typically, the largest, continuous cash inflow for a;business will come from?;A) Sale of our stock to investors;B) Bank loans;C) Cash collected from customers;D) Cash interest received on our investments;15. Which of the following would most likely have the;longest operating cycle?;A) Taco Bell restaurants;B) Aeronautical manufacturer Boeing;C) Motorcycle manufacturer Harley-Davidson;D) Safeway grocery stores.Final Examination;UGBA_XBW102A_Form A Page 5;16. On January 1, 20D, a two-year insurance policy was paid;for in advance and debited to;prepaid insurance for $2,400, therefore, on December 31;20D, the adjusting entry for the;expiration of this item should be a debit to insurance;expense for $1,200 and a credit to cash;for $1,200.;A) True;B) False;17. The statement of stockholders' equity would not include;A) Net income.;B) Net sales.;C) Investments by owners for stock issued.;D) Dividends declared.;E) None of the above is correct.;18. Which one of the following accounts would not be closed;at the end of the accounting year?;A) Rent expense.;B) Sales revenue.;C) Unearned subscriptions revenue.;D) Salaries expense.;E) All of the above would be closed.;19. When Lowry Company reports $120,000 of revenue and;$130,000 of expenses for 20D, the;following is the effect;A) Lowry's retained earnings is increased by the net income.;B) Lowry's contributed capital is increased by the net;income.;C) Lowry's retained earnings decrease by the net loss.;D) Lowry's total stockholders' equity decreases by the net;loss.;E) Both C and D occur.;20. Both the adjusting entries and the closing entries;usually are dated as of the last day of the;accounting period.;A) True;B) False;21. When the receivables turnover ratio has decreased over;the last year, it indicates less;effective management of the company's credit granting and;collection activities.;A) True;B) FalseFinal Examination;UGBA_XBW102A_Form A Page 6;22. Monitor Company's bank statement showed an ending;balance of $10,000. Items appearing;in the bank reconciliation included: outstanding checks;$500, deposits in transit, $1,000;bank service charges, $10, and Orange Company's check;erroneously charged to Monitor's;bank account by the bank, $110. The correct cash balance at;the end of the month should be;reported as;A) $10,600;B) $10,500;C) $11,610;D) $10,610;23. 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.;A) True;B) False;24. A company offers their credit customers terms of 3/10;n/60. This translates to an annual;interest rate of between 21 and 22%.;A) True;B) False;25. Outstanding checks that appear on a bank reconciliation;are those checks issued during the;current statement period that have not yet cleared the bank;during the current period.;A) True;B) False;26. 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 $235,000.;A) True;B) False;27. If a company has an increase in inventory equal to $3;million and a decrease in accounts;payable of $2 million, then cash flow from operating;activities will decrease by $1 million.;A) True;B) FalseFinal Examination;UGBA_XBW102A_Form A Page 7;Use the following to answer question 28;Johnstone Co. uses the periodic inventory system. The;following information about their;inventory of Model ZZ Mountain Bicycles is available;Date Transaction Number Units Cost per Unit;1/1 Beginning Inventory 50 $800;4/12 Purchase 80 $820;7/8 Purchase 75 $840;9/22 Purchase 90 $850;During the year, 235 bicycles were sold at a price of $1,500;each. Other operating costs;equaled $80,000 and their tax rate is 30%. Round final;answers to the nearest dollar.;28. What was ending inventory and cost of goods sold on;12/31 under the LIFO cost flow;assumption?;A)$51,000 and $194,100;B)$48,200 and $196,900;C)$49,851 and $195,249;D)None of the above.;29. The cost of goods sold account is a/an;A) asset.;B) contra asset.;C) extraordinary item.;D) liability;E) None of the above is correct.;30. With a perpetual inventory system, we track both the;units and costs of beginning inventory;purchased inventory and inventory sold.;A) True;B) False;31. Companies cannot change the method of depreciation;adopted for a group of assets.;A) True;B) FalseFinal Examination;UGBA_XBW102A_Form A Page 8;32. Areollis Company recently purchased a truck. The price;negotiated with the dealer was;$100,000. Areollis also paid sales tax of $8,000 on the;purchase, shipping and preparation;costs of $6,000, and insurance for the first year of;operation of $3,000. For the truck, what;amount should be debited to the asset account Vehicles?;A) $100,000.;B) $114,000.;C) $108,000.;D) $106,000.;E) $109,000.;33. Regardless of the method of depreciation used under;generally accepted accounting;principles (GAAP), the ending book value will be the same at;the end of the asset's useful;life.;A) True;B) False;34. In 20B, Gamma Company made an ordinary repair to a;delivery truck at a cost of $300.;Gamma's accountant debited the asset account, Delivery;Vehicles. Was this treatment an;error, and if so, what will be the effect on the financial;statements of Gamma?;A) The repair was accounted for correctly.;B) The error increased assets and net income in 20B.;C) In the years following 20B, net income will be too high.;D) The error decreased net income in 20B.;E) Net income was correctly stated for 20B.;35. No clear line distinguishes capital expenditures;(assets) from revenue expenditures;(expenses), therefore, it requires managers to exercise;judgment in making a subjective;decision.;A) True;B) False;36. Because of its large investment in equipment, Delta Air;Lines closely monitors the unused;seats on flights since it may be more profitable to reduce;fares to fill more seats thereby using;more of the capacity.;A) True;B) False;37. The current ratio is the dollar difference between total;assets and total liabilities.;A) True;B) FalseFinal Examination;UGBA_XBW102A_Form A Page 9;38. A company that sells primarily on a cash basis could;support a lower current ratio because;their cash inflow is faster than a company selling on;credit.;A) True;B) False;39. On January 1, 20A, Ross Company acquired a truck that;had a purchase price of $20,000.;The seller agreed to allow Ross to pay for the truck over a;two-year period at 10% interest;with equal payments due at the end of 20A and 20B. The;amount of each annual payment the;company must make is (round to the nearest dollar);A) $22,267.;B) $11,524.;C) $14,151.;D) $17,751.;E) None of the above is correct.;40. A contingent liability that is ?reasonably possible? but;?cannot reasonably be estimated?;A) must be recorded and reported as a liability.;B) does not need to be recorded or reported as a liability.;C) must only be disclosed as a note to the financial;statements.;D) must be reported as a liability, but not recorded.;41. A liability, to be reported on the balance sheet, must;have a fixed, known amount to be paid;in the future.;A) True;B) False;42. Disney Company's accounts payable equaled $4,603 million;in 2001 and was $5,163 million;in 2000. This change in accounts payable had a negative;impact on cash.;A) True;B) False;43. Which of the following statements is false relating to;payroll taxes?;A) When recording the payroll entry, the credit to wages;payable is usually more than the;debit to wages expense.;B) FICA (social security) tax is a ?matching? tax with the;employer.;C) Income taxes withheld from employees' paychecks are;liabilities of the employer.;D) When the salaries expense entry is recorded, the credit;to cash will be for less than the;debit to salaries expense.;E) Two of the above statements are false.Final Examination;UGBA_XBW102A_Form A Page 10;44. In 2001, Toys ? R? Us had an accounts payable turnover;ratio of 5.65, in 2000;5.49 and 6.08 in 1999. Which statement is true about what;the ratios indicate?;A) Toys ?R? Us is taking longer to pay its vendors in 2001;versus 2000.;B) Toys ?R? Us is taking more time to pay vendors in 2001;than in 1999.;C) Toys ?R? Us has seen some weakening of its accounts;payable turnover ratio but it has;not been a dramatic change.;D) Both B and C are true.;E) All of the above are true.;45. Amortization of a discount on a bond payable will make;the amount of interest expense;reported on the income statement less than the cash paid for;that year.;A) True;B) False;46. Bonds payable usually are classified on the balance;sheet as;A) long-term liabilities.;B) current liabilities.;C) investments and funds.;D) current assets.;E) None of the above is correct.;47. When a company prepares a bond indenture, certain;provisions of the bonds are included.;Which of the following are not provisions specified in the;indenture?;A) Dates of interest payments.;B) Rate of interest to be paid.;C) Maturity date.;D) Cash to be received at the issue date.;E) All of the above are specified in the indenture.Final;Examination;UGBA_XBW102A_Form A Page 11;Use the following to answer question 48;On January 1, 20D, Janus Company issued $5 million of;10-year bonds at a 10% stated;interest rate to be paid semiannually. The following present;value factors have been provided;to answer the subsequent questions;Time Period Interest PV of $ PV of an Annuity;10 10%.386 6.145;10 8%.463 6.710;10 12%.322 5.650;20 5%.377 12.462;20 4%.456 13.590;20 6%.312 11.470;48. Calculate the issuance price if the market rate of;interest is 12%.;A) $4,427,500;B) $4,477,500;C) $4,435,000;D) $5,000,000;49. A bond sold at a discount will pay total cash payments;for interest that is more than the total;interest expense recognized over the period the bond is;issued.;A) True;B) False;50. The balance sheet of Warner Company showed the following;data about its common stock;par $1: authorized shares, 5,000,000, outstanding shares;2,300,000, and issued shares;2,500,000. Therefore, the number of treasury stock shares;was;A) 0.;B) 2,700,000.;C) 2,500,000.;D) 200,000.;51. Which of the following statements is true?;A) An initial public offering (IPO) occurs when the company;first offers their stock for sale;to the public.;B) A seasoned new issue is the term used for any additional;sales of new stock to the public;after the IPO.;C) An underwriter, usually an investment banker, advises the;corporation on matters;concerning the sale of shares of stock and helps to market;those shares for a fee.;D) A and B are true.;E) All of the above are true.Final Examination;UGBA_XBW102A_Form A Page 12;52. A small stock dividend is generally defined as one;involving the distribution of additional;shares that are more than 50% of the currently outstanding;shares.;A) True;B) False;53. When a corporation calls in its outstanding shares and;issues two or more shares with a lower;par value in place of each share called in, the corporation;is said to have issued a stock split.;A) True;B) False;54. While all businesses are separate economic entities from;their owners, only corporations are;separate legal entities with the right to own assets, incur;liabilities, sue and be sued and enter;into contracts.;A) True;B) False;55. Which of the following are the typical rights afforded;the preferred stockholders?;A) A preference to receive dividends when declared by the;board of directors before common;stockholders can receive their dividends.;B) A preference to receive the liquidation value of the;assets as stated in the stock contract;before common stockholders can receive their share.;C) The right to vote on major corporate issues including;electing the board of directors.;D) Only A and B are preferred stockholder rights;E) All the above are preferred stockholder rights.;56. Which one of the following is a basic right of an owner;of common stock?;A) Participation in the corporation by voting in stockholder;meetings.;B) Participation in the profits of the corporation through;dividends declared by the board of;directors.;C) Sharing in the distribution of assets of the corporation;at liquidation.;D) Both A and B are rights.;E) All of the above are basic rights.;57. In 2001, Genentech had 535.3 million average common;shares outstanding, actual shares;outstanding at year-end of 528.3 million and reported;earnings per share of $.28. Genentech's;reported net income in 2001 equals;A) $149.9 million.;B) $147.9 million.;C) $148.9 million.;D) an amount that cannot be computed with the given;information.Final Examination;UGBA_XBW102A_Form A Page 13;58. Increases in current liabilities are added to net income;while decreases in current liabilities;are subtracted from net income to derive the net cash flows.;A) True;B) False;Use the following to answer question 59;In 20D, Malcom Corporation reported the following;information;Income Statement;Sales Revenue $ 8,200,000;Cost of goods sold 6,400,000;Gross profit 1,800,000;Operating expenses (includes $200,000 depreciation expense);1,250,000;Pretax income 550,000;Income tax expense (30% rate) 165,000;Net Income 385,000;Balance Sheet;20D 20C;Accounts receivable $ 800,000 $ 600,000;Inventory 520,000 480,000;Prepaid expenses 110,000 120,000;Accounts payable 340,000 310,000;Accrued liabilities 80,000 90,000;Income taxes payable 25,000 40,000;Unearned revenue 100,000 200,000;59. Malcom's cash paid for income taxes in 20D is;A) 165,000;B) 180,000;C) 150,000;D) 135,000;60. The statement of cash flows (indirect method) reports;depreciation expense as an addition to;net income because depreciation;A) causes an inflow of funds for the replacement of assets.;B) reduces reported net income of the period but does not;involve an outflow of cash for that;period.;C) is a direct use of cash.;D) reduces reported net income and causes an inflow of cash.;E) None of the above is correct.Final Examination;UGBA_XBW102A_Form A Page 14;61. The capital acquisitions ratio takes cash flow from;operations divided by property, plant and;equipment, net from the balance sheet.;A) True;B) False;62. The net cash inflow (or outflow) from operating;activities is computed by adjusting the;reported accrual net income for noncash revenue and noncash;expense items.;A) True;B) False;63. Investing activities must be disclosed under the gross;method. Therefore, if a company paid;$200 million to acquire new equipment and sold old equipment;for $25 million, then both;these items would be separately disclosed in the investing;section of the statement of cash;flows.;A) True;B) False;64. The book value of the investment stock sold would show;up as cash inflow from investing;activities.;A) True;B) False;65. The income statement, balance sheet and statement of;cash flows all are prepared on the;accrual basis.;A) True;B) False;66. In 2001, Coca-Cola disclosed cash paid for property;plant and equipment of $769 million;and cash flow from operations of $4,110 million. Their;average property, plant and;equipment from the comparative balance sheet was $4,311;million. Compute Coca-Cola's;capital acquisitions ratio for 2001.;A).95;B) 5.34;C) 5.61;D) None of the above.Final Examination;UGBA_XBW102A_Form A Page 15;67. XYZ Co. bought stock in ABC Corporation. This would be;reported as a cash outflow;connected to investing activities.;A) True;B) False;68. Which of the following statements about the statement of;cash flows is correct?;A) The sale of an investment in bonds for less than the;carrying value of the investment;would be reported as cash outflow from financing activities.;B) The sale and issuance of common stock for cash would be;reported as a cash inflow from;investing activities.;C) The retirement of bonds payable by the issuance of common;stock would be reported as a;cash inflow from investing activities.;D) Collecting cash interest revenue on a note receivable;would be reported as a cash inflow;from investing activities.;E) None of the above is correct.;69. Which of the following statements about cash flows from;operating activities, in a statement;of cash flows prepared under the indirect method, is;correct?;A) An increase in accounts receivable would be subtracted;from net income.;B) An increase in salaries payable would be subtracted from;net income.;C) An increase in inventory would be added to net income.;D) Depreciation expense would be subtracted from net income.;E) None of the above is correct.;70. Custer Corporation reported the following information;related to its common stock (par $10);outstanding and net income;Total stockholders? equity (no preferred stock) $125,000;Current market price per share of common stock $40;Dividends declared and paid during 20F $10,000;Balance in the common stock account $40,000;Net Income $35,000;The price earnings ratio and dividend yield ratio is;respectively;A) 4.57 and 6.25%;B) 4.26 and 6.77%;C) 4.57 and 6.77%;D) 4.26 and 6.25%Final Examination;UGBA_XBW102A_Form A Page 16;71. Which of the following statements is true?;A) When cost of goods sold as a percentage of sales;increases the gross margin percentage;will increase.;B) It is possible for cost of goods sold in dollars to;increase while cost of goods sold as a;percentage of sales decreases.;C) If gross margin percentage is the same for the current;and past year, then sales and cost of;goods sold in dollars did not change.;D) Both B and C are true.;E) All of the above are true.;72. If accounts receivable are collected quickly;A) the accounts receivable turnover is low.;B) the company's credit policies may be overly stringent.;C) credit is often granted to poor credit risks.;D) Two of the above are correct.;E) None of the above is correct.;73. The quick ratio of a company will always be less than or;equal to the current ratio (working;capital ratio).;A) True;B) False;74. In 2004, Coca-Cola's gross profit ratio was 65.2% and;their profit margin was 22.1%. In;2004, PepsiCo's gross profit ratio was 54.2% and their;profit margin was 14.4%. Which of;the following is false?;A) Coca-Cola's cost of goods sold was a lower percentage of;sales than PepsiCo's.;B) In 2004, Coca-Cola's profit margin was 53% greater than;PepsiCo's which would be;explained as a higher return on sales.;C) The major reason for PepsiCo's lower profit margin is;that their selling, general and;administrative expenses were double the percentage of sales;compared to Coca-Cola's;percentage of sales.;D) All of the above are false.;E) None of the above is false.;75. The effective (market) interest rate is less than the;stated interest rate on bonds that sell at a;premium.;A) True;B) False


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