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DeVry Cincinnati ACCT 212 Exam Guide

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Question;1. Which of the following persons or groups have the ultimate control of a corporation? the chief executive officer the chief operating officer the audit committee the stockholders 2. Financial statements arereports issued by outside consultants who are hired to analyze key operations of the business. reports created by management that states it is responsible for the acts of the corporation. standard documents that tell us how well a business is performing and where it stands in financial terms. standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms. 3. All of the following are forms of business organizations except: proprietorship. partnership. restaurant. corporation. 4.The largest organization of professional accountants in the United States is the: American Institute of Certified Public Accountants. Securities and Exchange Commission. Financial Accounting Standards Board. Auditing Standards Board. 5. The Financial Accounting Standards Board is responsible for establishing: the American Institute of Certified Public Accountants. the Securities and Exchange Commission. generally accepted accounting principles. the code of professional conduct for accountants. 6. The principle which states that assets acquired by the business should be recorded at their actual price is the:objectivity principle. stable dollar principle. cost principle. reliability principle. 7. The accounting equation can be stated as: Assets + Liabilities = Stockholders' equity. Assets = Liabilities + Stockholders' equity. Assets = Liabilities - Stockholders' equity. Assets + Stockholders' equity = Liabilities. 8. The owners' interest in the assets of a corporation is known as: assets. stockholders' equity. expenses. revenues. 9. Which of the following financial statements would a potential investor most likely use to evaluate a company's financial performance for the current period? balance sheet income statement statement of cash flows retained earnings statement 10. Assets appear on the: balance sheet. income statement. retained earnings statement. statement of cash flows. 11. Dividends appear on the: retained earnings statement. income statement. balance sheet both the retained earnings statement and the income statement. 12. The statement of cash flows is divided into three categories relating to cash flows from operating, investing, and: management planning activities. financing activities. strategic positioning activities. marketing activities. 13. Gains and losses appear on which of the financial statements listed below? the balance sheet the income statement the retained earnings statement the statement of cash flows 14. Cash spent to purchase new equipment would appear on the statement of cash flows as: a financing activity. an operating activity. an investing activity. purchases of new equipment do not appear on a statement of cash flows. 15. Which financial statement is based on the accounting equation? statement of retained earnings income statement statement of cash flows balance sheet 1. Accounts are grouped together in a book called the: ledger. trial balance journal. accounting equation. 2. The normal balance of an expense account is a __________ while the normal balance of a revenue account is a __________. debit, debit credit, credit credit, debit debit, credit 3. Accounting transactions are first recorded in a book or record called a: file. ledger. journal. source document 4. What is the first step in the journalizing process? Enter the transaction in the journal. Arrange data in chronological order. Determine what accounts will be affected and whether to debit or credit them. Post the transaction to the ledger. 5. The normal balance of Accounts Receivable is a __________ because it is a(n) __________ account. credit, liability debit, expense credit, stockholders' equity debit, asset 6. Posting, a part of the accounting process, refers to: copying amounts from the accounts in the general ledger to the journal. copying amounts from the financial statements to the general ledger. copying amounts from the journal to the appropriate accounts in the general ledger. copying amounts from the general ledger to the financial statements. 7. A chart of accounts is: a list of all accounts. a list of all balance sheet accounts. a list of all income statement accounts. a list of all accounts with their ending balances. 8. On December 1, 2003, Blue Mountain Snow Removal Service receives $1,800 in advance for an agreement to remove snow from a client's parking lot during the months of December, January, and February. As of December 31, 2003, Blue Mountain Snow Removal Service: would have a $1,200 liability to its client under accrual accounting, and would have a $1,800 liability to its client under cash-basis accounting. would have recognized $600 revenue under accrual accounting, and would have recognized $1,800 revenue under cash-basis accounting. would have a $0 liability to its client under accrual accounting, and would have a $1,200 liability to its client under cash-basis accounting. would have recognized $600 cash under accrual accounting, and would have recognized 1,800 cash under cash-basis accounting. 9. An accrual refers to an event: where the cash has not been exchanged between the two parties. that will never involve an income statement account. that will never involve cash. where the cash has already exchanged hands between the two parties. 10. A deferral refers to an event: where the recognition of an expense or revenue is recorded before the cash is paid or received. where the liability for an expense is recorded after the expense is actually incurred. where the liability for an expense is recorded before the expense is actually incurred. where the recognition of an expense or revenue is recorded after the cash is paid or received. 11. The accounting principle which tells accountants when to record revenue and in what amount is called the:matching principle revenue principle. full disclosure principle. going concern principle. 12. The accounting principle which serves as the basis for determining when to record expenses is the: going concern principle. revenue principle. full disclosure principle. matching principle. 13. Adjusting entries: are prepared at the option of the accountant. are not needed under the accrual basis of accounting. are prepared at the beginning of the accounting period to update all accounts. are prepared at the end of the accounting period to update certain accounts. 14. Book value is defined as: Your: depreciation expense plus accumulated depreciation. the cost of a plant asset less depreciation expense. the cost of a plant asset less accumulated depreciation. the cost of a plant asset plus accumulated depreciation. 15. In what order are financial statements generally prepared? balance sheet, statement of retained earnings, and income statement income statement, statement of retained earnings, and balance sheet income statement, balance sheet, and statement of retained earnings statement of retained earnings, income statement, and balance sheet 1. All of the following are purposes of internal control except: to safeguard assets. to ensure accurate and reliable accounts records. to encourage adherence to company policies. to ensure the company makes a profit. 2. Who has the primary responsibility for establishing and maintaining a company's system of internal control? the company's top management the company's internal auditors the company's external auditors the company's stockholders 3. For effective internal control in an organization, who should keep the inventory records? accountant treasurer sales persons inventory warehouse supervisor 4. Which of the following is a limitation of internal control? safeguarding company assets accurate and reliable accounting records operational efficiency employee collusion 5. An Internet hacker may sometimes succeed in defeating a company's firewall system and burrow into the company's Web site. Which layer of the onion model of e-commerce system security would the hacker be likely to encounter next? an encryption device an incident response procedure an intrusion detection device another firewall 6. When preparing a bank reconciliation, which of the following items would be subtracted from the bank balance? deposits in transit bank service charges EFT cash payments outstanding checks 7. Securities include: only debt instruments. only equity instruments. may be debt or equity instruments. represent Accounts Receivable and Notes Receivable on the balance sheet. 8. A ledger that contains a separate account for each customer is called an accounts receivable:control ledger current ledger trade ledger subsidiary ledger 9. A critical element of internal control over collections of accounts receivables is: depositing the cash from the cash register on a daily basis setting up a petty cash account using a check writing machine the separation of cash-handling and cash-accounting duties 10. The two accepted methods of recording bad debts are theallowance method and the aging method receivables method and the aging method allowance method and the direct write-off method direct write-off method and the percentage-of-sales method 11. Net accounts receivable is calculated as:sales less sales returns and allowances accounts receivable less uncollectible-account expense accounts receivable less allowance for uncollectible accounts accounts receivable plus allowance for uncollectible accounts 12. Which principle of accounting prescribes the use of the allowance method of accounting for bad debts? full disclosure principle historical cost principle revenue recognition principle matching principle 13. The formula for computing interest expense is equal to: principal x interest rate x time. (interest rate x principal) / time (principal x time) / interest rate principal / (interest rate + time). 14. The number of days it takes to collect the average amount of receivables is called: the quick ratio the acid-test ratio the current ratio days' sales in receivables 15. Which of the following ratios is considered to be a more stringent measure of a company's ability to pay its current liabilities than the current ratio? acid-test ratio equity ratio debt ratio days' sales in receivables 1. The largest expense category on the income statement of most merchandising companies is: cost of goods sold other expenses selling expenses administrative expenses 2. In a merchandising business, gross profit is equal to sales revenue minus: the sum of cost of goods sold, operating expenses, and prepaid expenses the sum of cost of goods sold and operating expenses cost of goods sold the sum of cost of goods sold and sales commissions 3. Technological advances in computers and inventory tracking have: made perpetual inventory records less expensive to maintain completely eliminated the need to physically count inventory made journal entries unnecessary for inventory purchases made perpetual inventory records more expensive to maintain 4. Given the following data, what is the cost of goods sold?Sales revenue $1,980,000Beginning inventory 380,000Ending inventory 340,000Purchases 1,250,000$690,000 $770,000 $1,290,000 $1,210,000 5. Given the following data, what is the cost of ending inventory? Sales revenue $1,450,000Cost of goods sold 845,000Beginning inventory 310,000Purchases 950,000$1,485,000 $415,000 $1,035,000 $205,000 6. When the LIFO method is used, ending inventory is assumed to consist of: the oldest units the most recently purchased units the units with the highest per unit cost the units with the lowest per unit cost 7. When the FIFO method is used, cost of goods sold is assumed to consist of: the most recently purchased units the units with the lowest per unit cost the units with the highest per unit cost the oldest units 8. The lower-of-cost-or-market rule is an application of: accounting conservatism the disclosure principle the consistency principle the materiality concept 9. Treating a capital expenditure as a immediate expense: understates expenses and overstates owners' equity understates expenses and understates assets overstates assets and overstates owner's equity overstates expenses and understates net income 10. Which of the following depreciation methods best fits those assets that tend to wear out before they become obsolete? depletion method straight-line method double-declining-balance method units-of-production method 11. Depreciable cost is defined as: book value estimated residual value cost minus accumulated depreciation cost minus estimated residual value 12. In which of the following depreciation methods is annual depreciation calculated as the difference between the asset's historical cost and its residual value, divided by the asset's useful life in years?double-declining-balance straight-line units-of-production MACRS 13. Book value is defined as: cost less salvage value cost less accumulated depreciation current market value less salvage value current market value less accumulated depreciation 14. All of the following are intangible assets except: trademarks natural gas goodwill copyrights 15. Most intangible assets are: amortized over a period of 40 years or less amortized over a period of 20 years or less amortized over a period greater than 40 years expensed immediately on the income statement 1. Current liabilities are obligations due within: one year or within the company's normal operating cycle if it is longer than one year. one year or within the company's normal operating cycle if it is shorter than one year. one month or within the company's normal operating cycle if it is longer than one month one month or within the company's normal operating cycle if it is shorter than one month 2. Warranty expense should be recorded in the period: that the product sold is repaired or replaced the product is sold immediately following the period in which the product is sold that the product is paid for by the customer 3. Short-term notes payable: are generally due within three months, with a maximum time period of six months. are shown as a reduction to notes receivable on the balance sheet, with an appropriate footnote disclosure are shown on the balance sheet with current liabilities are shown on the balance sheet after bonds payable 4. Which is the preferred method to use when amortizing a bond discount or premium? straight-line method of amortization market-interest rate method of amortization effective-interest method of amortization both s A and B 5. All of the following are advantages of issuing stock except: less risky to the issuing corporation creates no liabilities for the corporation creates no interest expense which must be paid generally results in a higher earnings per share 6. All of the following are advantages of issuing bonds except:interest expense is tax deductible does not dilute control of the corporation less risky to the issuing corporation generally results in higher earnings per share 7. Corporations are separate taxable entities. The earnings of a corporation are subject to: federal unemployment taxes taxation by the SEC double taxation the same method of taxation as partnership earnings 8. The number of stocks currently in the hands of stockholders is the same as the number of stocks: issued. authorized. outstanding proposed by the board of directors 9. Which of the following types of business organizations terminates when its ownership structure changes?partnerships and proprietorships partnerships and corporations proprietorships and corporations only corporations 10. The ultimate control of the corporation rests with the: SEC and congress chief executive officer stockholders. employees 11. All of the following are basic rights of a stockholder except:the right to vote the right to receive a proportionate share of any assets remaining before the corporation pays its liabilities in the event of liquidation the right to maintain one's proportionate ownership in the corporation the right to receive a proportionate part of any dividend 12. In a corporation, the two basic sources of stockholders' equity are: paid-in capital and operating capital paid-in capital and retained earnings donated capital and paid-in capital donated capital and retained earnings 13. Stock that a corporation has issued and later reacquired is called: issued stock outstanding stock treasury stock authorized stock 14. A dividend becomes a legal liability of the corporation on the: date of payment date of declaration date of record date of distribution 15. Which of the following shows the relationship between net income and average common stockholders' equity?current ratio acid-test ratio return on equity return on assets 1. A statement of cash flows: is prepared at the option of management may be combined with the balance sheet is a basic financial statement required for publicly held companies may be combined with the statement of retained earnings at the option of management 2. Cash means more than just cash on hand and cash in the bank. Highly liquid, short-term investments that are easily convertible into cash are called: common stock cash equivalents promissory notes accounts receivable 3. The statement of cash flows is designed to fulfill all of the following purposes except: to determine the company's ability to pay dividends to stockholders to assess the collectibility of accounts receivable to predict future cash flows to show the relationship of net income to changes in the company's cash 4. The most important section of a statement of cash flows is the: operating activities investing activities financing activities All of the sections are equally important 5. Investors analyze the statement of cash flows to determine: the debt-to-equity ratio which businesses are expanding and which are shrinking which companies are reporting unearned revenues total interest earned during the period 6. Cash received from customers would be reported on the statement of cash flows under: investing activities operating activities financing activities in the schedule of noncash investing and financing activities 7. The issuance of bonds for cash would be reported on a statement of cash flows under the: operating activities investing activities financing activities no activities because issuing bonds for cash would not be reported on a statement of cash flows 8. The issuance of common stock for cash would be reported on a statement of cash flow under: the operating activities the investing activities the financing activities either investing activities or operating activities 9. Cash collected from customers can be computed by the following formula: ending accounts receivable plus beginning accounts receivable minus sales ending accounts receivable minus beginning accounts receivable plus sales beginning accounts receivable minus ending accounts receivable plus sales beginning accounts receivable minus ending accounts receivable minus sales 10. The amount of cash paid for dividends for the current year can be calculated by the following formula: beginning dividends payable minus ending dividends payable plus dividends declared beginning dividends payable plus ending dividends payable plus dividends declared beginning dividends payable minus ending dividends payable minus dividends declared beginning dividends payable plus ending dividends payable minus dividends declared 11. The sale of treasury stock is a(n) __________ on a statement of cash flowsoperating activity investing activity financing activity financing activity or an investing activity 12. On December 31, 2004, the Bison Bit Company's Retained Earnings account had a balance of $420,000. During 2004, the company incurred a net loss of $85,000, declared stock dividends of $15,000, and paid cash dividends of $10,000. If the Dividends Payable account increased $4,000 during 2004, the January 1, 2004, balance in the Retained Earnings account was: $534,000 $476,000 $526,000 $306,000 13. King Edward Company reported plant assets, net of accumulated depreciation, on January 1, 2004, at $427,500 and $579,300 on December 31, 2004. The income statement showed depreciation of $38,700. King Edward Company acquired $275,000 of plant assets during the year and reported proceeds from the sale of plant assets of $89,200 for the year. The gain or loss resulting from the sale of plant assets was: $3,400 loss $2,390 loss $4,700 gain $5,050 gain 14. On January 1, 2004, Prepaid Insurance had a balance of $6,700 and on December 31, 2004, a balance of $8,320. The income statement for the year reported Insurance Expense of $49,310. Payments for insurance during the year amounted to: $49,310 $47,690 $50,930 $57,630 15. The amount founds in the Salaries Payable account for NovaLights Company were $14,500 and $16,000 on December 31, 2003, and December 31, 2004, respectively. Cash paid to employees for the years ended December 31, 2003, and December 31, 2004, were $255,000 and $280,000, respectively. NovaLights Company's Salary Expense for the year ended December 31, 2004, was: $253,500 $281,500 $278,500 $256,500 1. Horizontal analysis involves the study of: percentage changes in comparative financial statements percentage and/or dollar amount changes in various financial statement amounts from year to year the change in key financial statement ratios over a certain time frame or horizon the changes in individual financial statement amounts as a percentage of some related total 2. A company reported $75,000 of income for 2003, $80,000 for 2004, and $90,000 for 2005. The percentage change in net income from 2004 to 2005 was: 9.1%. 11.1%. 12.5%. 16.7%. 3. Assuming the Accounts Receivable balance at the end of 2003 is $80,000, and it has decreased by 15% per year since the end of 2001, the balance at the end of 2001 (rounded to the nearest whole dollar) was: $110,727 $99,188 $94,188 $53,333 4. Which of the following would be most likely to reveal that cost of goods sold is 125% of the amount shown for a base year? trend analysis ratio analysis vertical analysis horizontal analysis 5. When performing vertical analysis of an income statement, which of the following is usually used as the base? Operating income net sales net income gross profit 6. Vertical analysis looks at: percentage changes in the balances shown in comparative financial statements. the change in key financial statement ratios over a specified period of time the dollar amount of the change in various financial statement amounts from year to year individual financial statement items expressed as a percentage of a base (which represents 100%). 7. Common-size financial statements represent a form of: ratio analysis vertical analysis trend analysis horizontal analysis 8. Of the items listed below, the one most helpful in the comparison of different size companies is: horizontal analysis comparison of their net incomes preparation of common-size financial statements comparison of their working capital balances 9. Analyzing the statement of cash flows may help analysts determine the financial health of a company. Which of the following signs below is not an indicator of a financially healthy company? The company's operations are a major source (not a use) of cash. The company's operations are a major use (not a source) of cash The company's investing activities include more purchases than sales of long-term assets. The company's financing activities are not dominated by borrowing 10. The current ratio is calculated as: total assets / total liabilities current assets / total liabilities current assets x current liabilities current assets / current liabilities 11. Working capital is defined as: current liabilities - current assets current assets - current liabilities total assets - total liabilities current assets + current liabilities 12. Inventory turnover is calculated as: average inventory for the period / cost of goods sold cost of goods sold / average inventory for the period gross profit for the period / average inventory for the period average inventory for the period / gross profit for the period 13. Accounts receivable turnover is calculated as: total cost of goods sold / 365 days total net credit sales / average net accounts receivable average net accounts receivable / 365 days total net credit sales / cost of goods sold 14. The times-interest-earned ratio is calculated as: income from operations / interest expense net income / interest expense net income after taxes + interest expense/interest expense income from operations \'2D interest expense/interest expense 15. The dividend yield is calculated as: dividends per share / market price per share of common stock dividends per share / earnings per share of common stock dividends per share / book value per share of common stock dividends per share / number of shares of common stock

 

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