Assets & Liabilities – Accounting & Finance Exam
Assets & Liabilities – Accounting & Finance Exam
If a potential creditor or investor wants to assess the ability of a company to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities, the creditor or investor is assessing:
financial flexibility. – Correct
profitability.
solvency.
materiality.
liquidity.
The net assets of a business are equal to
total assets minus total stockholders’ equity.
current assets minus total current liabilities.
total assets plus total stockholders’ equity.
total assets plus total liabilities.
none of these answer choices are correct. – Correct
Which limitation of an income statement occurs when one company uses a straight-line depreciation method while another company uses an accelerated depreciation method?
Income statement measurements involve making judgments.
Amounts on the income statement are affected by the accounting method choices a company makes. – Correct
Companies omit from their income statements items they cannot measure precisely.
Income statement measurements involve making estimates.
Companies include in their income statements items they cannot measure accurately.
The net assets of a business are equal to
total assets minus total stockholders’ equity.
current assets minus total current liabilities.
total assets plus total stockholders’ equity.
total assets plus total liabilities.
none of these answer choices are correct. – Correct
On 12-31-19, Gage entered into an agreement that required Gage to pay a vendor $800 every year on 12-31 until 2039. The agreement required Gage to make the first annual payment on 12-31-19. Assume the market rate of interest for Gage is 2%. As of 12-31-19 what was the present value of Gage’s obligation?
$13,081
$13,881 – Correct
$12,281
$13,014
$13,609
The failure to properly record an adjusting entry to accrue an expense will result in an
understatement of net income.
overstatement of expenses and an overstatement of liabilities.
understatement of expenses and an understatement of liabilities. – Correct
understatement of expenses and an understatement of assets.
overstatement of expenses and an overstatement of assets.
If a potential creditor or investor wants to assess the ability of a company to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities, the creditor or investor is assessing:
financial flexibility. – Correct
profitability.
solvency.
materiality.
liquidity.
Which limitation of an income statement occurs when one company uses a straight-line depreciation method while another company uses an accelerated depreciation method?
Income statement measurements involve making judgments.
Amounts on the income statement are affected by the accounting method choices a company makes. – Correct
Companies omit from their income statements items they cannot measure precisely.
Income statement measurements involve making estimates.
Companies include in their income statements items they cannot measure accurately.
Assume S Company only prepares AJEs as of December 31, the end of S’s accounting year. On August 1, S collected $12,000 of rent for 12 months in advance and recorded the receipt in a real account. The AJE S will make on December 31 will include a(an)
$5,000 debit to rent revenue
$6,000 debit to unearned rent
$6,000 credit to rent revenue
$5,000 debit to unearned rent – Correct
$5,000 credit to unearned rent
Which organization was established by the U.S. federal government to help develop and standardize financial information that is presented to stockholders?
The Sarbanes-Oxley group
The Committee on Accounting Procedure
The Securities and Exchange Commission – Correct
The Financial Accounting Standards Board
The American Institute of Certified Public Accountants
Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board for amending the FASB Accounting Standards Codification?
A proposed statement of financial position
A proposed accounting standards update – Correct
proposed staff accounting bulletin
proposed accounting research bulletin
A proposed accounting opinion
Assume Farb values the inventory reported on its balance sheet and the amount recorded as cost of goods sold on its income statement solely on the basis of its physical inventory count that took place on December 31, 2019. When performing its physical inventory count, Farb counts whatever is on the premises. Information relating to one of Farb’s inventory sales follows:
Goods shipped by Farb to a customer f.o.b. destination on December 28, 2019 were in transit on December 31, 2019. The goods cost Farb $40,000. When Farb’s customer received the goods on January 7, 2020 Farb billed the customer and recorded a credit sale of $100,000.
What impact did the aforementioned inventory purchase have on Farb’s ending inventory, accounts receivable, cost of goods sold, and retained earnings, respectively?
under $40,000, under $100,000, under $40,000, under $140,000
under $40,000, $0 impact, over $40,000, under $40,000 – Correct
over $40,000, $0 impact, under $40,000, over $40,000
under $40,000, under $100,000, over $40,000, $0 impact
$0 impact, $0 impact, $0 impact, $0 impact
Which of the following items should be included in B’s inventory as of B’s balance sheet date?
goods sold by B to a customer prior to the end of the year.
the goods received from another company for B to sell on a consignment basis.
the goods in transit to a customer sold by B and shipped by B to the customer f.o.b. shipping point.
goods in transit to B that B purchased f.o.b. shipping point. – Correct
goods in transit to B that B purchased f.o.b. destination.
The net assets of a business are equal to
total assets minus total stockholders’ equity.
the current assets minus total current liabilities.
total assets plus total stockholders’ equity.
total assets plus total liabilities.
none of these answer choices are correct. – Correct
When Gage makes credit sales, Gage offers its customers a sales discount with terms of 1/5, n/40. Gage uses the gross method to record credit sales. On March 26, 2019, Gage recorded credit sales of $500,000. On March 31, 2019, Gage collected 40% of the receivables Gage recorded on March 26, 2019. Gage’s accounting, i.e., fiscal, year-end is March 31, 2019. What amount will Gage report on its balance sheet for the year ended March 31, 2019 relating to the receivables Gage recorded on March 26, 2019?
$300,000 – Correct
$295,000
$200,000
$198,000
$297,000
Jones manufactures one product. On 12-31-18, Jones adopted the dollar-value LIFO inventory method. Jones’ ending inventory on 12-31-18 was $38,000 and the 2018 factor (index) was 1.00. Other data follows:
Ending inventory as of 12-31-19 at year-end prices = $38,540; 2019 factor = 1.025
Ending inventory as of 12-31-20 at year-end prices = $39,243; 2020 factor = 1.030
What was Jones’ ending inventory as of 12-31-20?
$37,600
$38,510
$38,100
$38,115 – Correct
$38,128
Pam completed a physical inventory on 12-31-18. On the basis of her count, Pam determined her ending inventory to be $39,000. In recent years, Pam’s gross profit equaled 60% of Pam’s cost. Additional information from Pam’s accounting records identified the following:
Inventory, 12-31-17 $12,000
Purchases during 2018 $228,000
Purchase returns during 2018 $3,000
Sales during 2018 $314,600
Sales returns during 2018 $9,000
Pam suspects some inventory is missing. Pam used the gross profit method to estimate what her ending inventory should be based on historical facts and trends.
What estimated loss, if any, should Pam record for the missing inventory.
$10,000
$13,200
$14,000
$7,000 – Correct
$4,250
On December 1, Miser Corporation, a publicly traded firm, exchanged 6,000 shares of its $25 par value common stock for a parcel of land to be held for a future plant site. On the exchange date, the common shares of Miser had a fair value of $50 per share. The land was recently appraised for $280,000. Miser received $18,000 for selling scrap when an existing building on the land was removed from the site. Based on these facts, the land account should be increased by
$168,000.
$262,000.
$282,000 – Correct
$300,000.
$280,000.
Debt is often incurred when a company acquires fixed assets. For example, a company may incur debt during the purchase of a fixed asset. Debt may also be incurred during the self-construction of a fixed asset. How are the interest costs accounted for in these two instances?
for purchase, account for; for self-construction, do not account for.
purchase, capitalize; for self-construction, expense.
purchase, capitalize; the self-construction, capitalize.
for purchase, expense; the self-construction, expense.
for purchase, expense; for self-construction, capitalize. – Correct
When a company purchases land as a site for a distribution center, interest costs capitalized during the construction of the distribution center are accounted for as
a cost of the land.
a period cost.
an intangible asset.
an expense during construction.
a cost of the distribution center – Correct
If a potential creditor or investor wants to assess the ability of a company to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities, the creditor or investor is assessing:
financial flexibility – Correct
profitability.
solvency.
materiality.
liquidity.
The costs incurred in an unsuccessful defense of a manufacturing-related patent suit should be
capitalized and amortized over the remaining life of the patent.
capitalized and amortized during the legal defense period.
added to factory overhead and subsequently expensed when the inventory item is sold.
added to factory overhead and allocated to production of the inventory item.
expensed in the period incurred – Correct
If a potential investor wants to assess the ability of a company to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities, the investor is assessing:
profitability.
liquidity.
financial flexibility. – Correct
solvency.
The balance sheet is useful for analyzing all of the following except
financial flexibility.
liquidity.
profitability. – Correct
solvency.
The net assets of a business are equal to
total assets minus total stockholders’ equity.
current assets minus total current liabilities.
total assets plus total stockholders’ equity.
total assets plus total liabilities.
none of these answer choices are correct. – Correct
Major limitations of the balance sheet include all of the following except:
only amounts known with absolute certainty are reported. – Correct
judgments and estimates are used to determine many of the items reported.
most assets and liabilities are reported at historical cost.
it necessarily omits many items that are of financial value but cannot be recorded objectively.
If a potential creditor or investor wants to assess the ability of a company to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities, the creditor or investor is assessing:
financial flexibility. – Correct
profitability.
solvency.
materiality.
liquidity.